People
The UK property market faces an imminent pinch-point at the end of this week, as the moratorium on unpaid rent finally comes to an end.
In parallel, the UK Government has launched an arbitration process whereby landlords and tenants have six months to refer disputes to arbitration in respect of unpaid rent incurred during COVID-19 lockdowns. This arbitration process will only be applicable to those operators who were forced to close and does not apply to “essential” retailers such as grocers, convenience stores, and pharmacies who remained open during the pandemic.
There is a strong chance that the removal of one of the critical pillars of government support, which played a key role in the survival of many businesses during the pandemic, will mark a watershed moment for restructuring activity. The macroeconomic headwinds also confronting many organisations – notably inflationary and significant supply chain challenges – will only serve to increase financial pressure. UK consumer habits also continue to evolve, bringing into question the long-term strategy that retailers in particular should consider with regard to their optimal physical footprint alongside the build-out of any digital transformation programmes.
Given there is just a six-month window to apply to enter arbitration, tenants will need to be highly organised and swift with their submissions. Strategic consideration is also needed now with regard to how tenants address any unpaid rent, in order to get on the front foot and stay ahead of the process – once arbitration has begun, landlords will be unable to be bound by any subsequent CVA.
The rent milestone of 25 March is a significant one, clearly bringing these specific arrears into sharp focus. However, broader business and market considerations must still form the backbone of any restructuring plans. Addressing operational issues in silo will unlikely gain the same levels of support and confidence from stakeholders as a holistic review that gets to the heart of rebuilding a sustainable business, as efforts intensify to accelerate away from the pandemic.
