On 29 May, the Government announced that it was to publish a code of practice jointly with the commercial sector. It was said that high street businesses and landlords would benefit from the clarity and reassurance over rent payments that it would provide. Thus far, the announcement has only delivered a working group involving politicians, landlords, tenants and commercial finance providers which is seeking to develop a code encouraging fair and transparent discussions between landlords and tenants over rental payments during the COVID-19 pandemic.
This initiative is coupled with proposed amendments to insolvency legislation. However, the guidance doesn’t address the fundamental problem faced by many businesses which have, as Kate Nicholls, the CEO of UK Hospitality, said “seen revenues all but dry up since March”.
UK Finance issued a statement confirming they had provided Government-backed facilities of £27.5 billion of lending to 650,000 businesses as at 24 May. It adds that the lenders recognise that the June/ July rent quarter may create concerns for commercial landlords and tenants as banks and finance providers are committed to supporting viable businesses. UK Finance insists lenders are providing a wide range of flexible support, including amendments to facilities and capital payment holidays. However, the key point is that borrowers still owe the money where a capital payment holiday has been granted, and interest continues to accrue.
Therefore, the hole in the finances caused by months of no or limited trading has not been addressed and is likely to grow without intervention. The Government predicts a recession worse than 2008 and it’s difficult to see how scores of businesses can weather the imminent storm.
Tellingly, on 5 June, the Government extended the moratorium on evictions in relation to private landlords and tenants for a further two months until the end of August. It will be interesting to see whether they also extend the moratorium on commercial action for that period. However, all that does is kick the can down the road. The relatively interventionist and proactive nature of the furlough scheme in relation to individuals is in contrast to the more financially timid support provided to businesses which has not yet addressed the fundamental issues.
Concerns have been raised by leading voices in the business community. Helen Dickerson, Chief Executive of the British Retail Consortium, said: “We welcome the Government’s Code as a positive first step…However all sides must be prepared to do more if necessary”. This view was echoed by Melanie Leech, Chief Executive of the British Property Federation, who said “The majority of property owners and tenants are already working well together…fair collaboration amongst lenders, property owners and tenants is vital to the UK’s recovery”. Kate Nicholls, CEO of UK Hospitality, said “… Government intervention is desperately needed – with a sustainable financial plan in place. Our sector needs enforceable measures in place…”
And there’s the rub – the Government is asking everyone to behave responsibly but is not imposing any obligations to do so. The guidance has no legal effect and does not stop the minority who are not cooperating and acting in self-interest which has the potential to undermine the intention of the support provided.
In particular, two comments sum up why it’s essential that the Government gets this right. Melanie Leech said: “Fair collaboration amongst lenders, property owners and tenants is vital to the UK’s recovery and it will ensure that viable businesses in distress as a result of coronavirus are supported to protect both people’s jobs and the local authorities, savers and pensioners who own the majority of our town centres”. Kate Nicholls added “Our sector needs enforceable measures in place so that the burden currently borne by operators is shared more equitably. This code could be pivotal in protecting communities and high streets from mass closures and job losses”.
If it does not, then businesses that were viable prior to the pandemic will shut, with subsequent mass job losses, and all the money expended on furlough will have been for nought. Delaying possession proceedings for a few more months is not the answer. The Government needs to be bold. Other countries, such as Denmark, have introduced a furloughed grant scheme where the Government proposes compensating businesses for a drop in revenue to enable them to meet at least some of the fixed costs incurred whilst being closed during the pandemic.
Given that the moratorium on action expires on 30 June 2020, we should expect more news and developments shortly.
