The last few days or so has seen our team emerge from enforced hibernation and the restart of delayed property inspections. What has come to the front is the lack of reality being shown by an alarming number of POB retail field staff in rent negotiations. One month in from the release of lockdown trading and the trading results are very mixed. Our hearts go out to inner city and entertainment-based establishments. The footfall is appalling and the social distancing for anything music based is devastating. This brings us to the thorny question of one of the key issues of rent review. That of the ‘Willing Landlord’ and the ‘Willing Tenant’. Well you may ask, what has this to do with me?
All rent reviews, if you follow the lease wording, are an artificiality. You as the tenant do not exist, vacant possession is assumed and the Tenant in occupation is to be ignored. So far so good. But in place of all that is the ‘willing Landlord’ and the ‘Willing tenant’. The problem has arisen in some free of tie (MRO) rent settlements that have recently surfaced. Some of the POBs are not best pleased with the very low rents determined by the Independent Assessors. The loud and clear gripe is basically “We would never willingly let that pub for such a low rent”. This comes back to the rent review assumptions as above. But wait a minute, is there a willing tenant out there in this severely depressed market. No not really and if there were all the aces are in their hands. Reality rules!
The POB has a major problem. A willing tenant does not have to take any particular property. They can walk away and find something else. The POB has no such luxury of selective decision making. They cannot walk away from their property; they are stuck with it come what may. No tenant means no wholesale contribution from beer sales, no rent, property maintenance, utilities and rates to pay plus insurance. It all mounts up if there is no tenant. Yes, they will have to take the best they can get and if it is well below expectations (MRO rent offer) then that is the way the market is talking to us loud and clear.
We put the theory to the test in the last week or so and asked the tenants we were visiting just how willing would you be to take on another lease in the current market? Aside from the quick answer “You are having a laugh aren’t you” we pressed the point. Uniformly the reply was that even if it was the most attractive pub under the sun it all comes back to making a profit. The pub must be viable and if not, they would not be in the least bit interested.
Reality check yet again. The future duration of the pandemic is now sinking in with mainstream economic forecasts predicting anything up to three years. Even then there will no going back to pre-pandemic levels or trading styles. In the main that has gone for good whatever the POBs want you to believe. Scary stuff. Imagine the reception to the POB suggestion that this will all blow over in less than six months. Combine this with the shrinking of the numbers of permitted drinkers and diners due to health and safety requirements, the one and only fixed cost that can vary downwards is rent. Being unrealistic and not recognising this essential fact is doing some of the POBs no favours at all. They may not be ‘willing’, but market evidence indicates that they have little is any choice.
Trying to be totally positive in looking into the next few months…. WE DO REALITY.