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Rent Deferment & Non Payment - The Law

Updated: Mar 16, 2021

2020/NO.07 - The key to being able to pay rent is being able to trade and make profits. This is the key factor in the troubled times which could extend for many months in the leisure industry. No trade, no profit, no rent payment.

Rent assessment not rent liability, is based on the profits test basis of rent valuation. This in turn is dependent on making a profit from a given volume of sales. Certain trade luminaries have justified the total and continuing non payment of rent on the back of not making a profit either now or in the foreseeable future. Is this correct in law? We dug out the legal text books and checked on line as to the latest legal thinking.

Schedule 2 of the Health Protection (Coronavirus Restrictions ) (England) Regulations 2020 list the businesses which must close and not trade during the stated period of emergency. The fact that the pub or restaurant is now closed for business (and probably the last to reopen) does not mean that the tenant has been deprived of occupation of the lease in the eye of the law. The tenant can continue to have what is known as “beneficial occupation”, store stock, use the catering facilities and act in a wonderfully charitable manner to provide free food for local NHS staff and other needy people, hold Zoom conferences with furloughed staff, run a takeaway facility etc ,etc. The key feature is that the tenant has not been deprived of leasehold possession altogether. Being deprived of prime business use in our now researched view, is not the same as being denied possession. Rent, unfortunately, is still legally owed.

Which brings us on to a passing look at an emotive side issue. That is the case being made out by some that it is much better to be holding a still supply tied lease rather than a free of tie lease. Let’s take a case in point which is Greene King(GK). We care not especially singling out Greene king, just that it confirms a mind set together with the other POBs (except Admiral Taverns).

GK is owned by CK Asset, founded by Li Ka-Shing, reputed to be Hong Kong’s richest individual. He bought GK last year for £4.6 billion including debt. Word reaches us that GK has furloughed some 35,000 employees being staff in amongst others their head office, general management, retail field staff and managed house employees (Chef and Brewer, Hungry Horse for example). But did this largesse extend to its tenanted estate in terms of best possible financial protection? Well not quite. Rent payment has not been cancelled, only deferred. For sure there will we hope, be a case by case ‘understanding’ but the rent money owing will still need to be paid. The same holds for a free of tie lease which, when things get back to normal, is to the tenant at least, intrinsically more profitable. Rent is an essential core income stream for any POB. This tangible income underpins shareholder and market confidence together with bank loan debt. Rent is just as important to the POB whether from a tied or free of tie lease. Nobody wants to see boarded up pubs and POBs desperately trying to find new tenants at probably much reduced rents.

GK are not alone in this strategy which will see the skies darken with chickens coming home to their financial roost in the many months to come. EI Group, Marston’s, Punch and Star Pubs & Bars are all storing up the same problem. As earlier mentioned the one POB that initially wanted to keep their tenants genuinely afloat are Admiral Taverns. Together with Admiral the other ( Brewers) adopting the same benevolent strategy include Adnams, Fullers, Harveys, Shepard Neame, Wadworths and Youngs. Funny that, but it is the family brewers that really do seem to care for their valued tenants by cancelling rent altogether while the emergency lasts.

Just imagine seeking reassurance from your supply tied Regional Manager or BRM for an idea as to when you can look to return to profitability and be able to afford to pay down the mounting rent debt which has been deferred not cancelled. Tongue in cheek the answer might be something like this….

“We have according to revised Government projections, based on solid scientific evidence of adjusted figures, without prejudice and subject to contract and using blue sky thinking together with an holistic approach have more or less something in the order of approaching absolutely no idea. “

Sounds like a few people we all may know !

In short, no pub no rent would hold up if you were arguing against RICS and the like focusing on rent assessment. Rent liability is a wholly different argument, and unfortunately, the law would point to the fact that a rent is owed. Hope is not lost, there is some benefit in the family brewers canceling rents, a campaign mounting pressure on the larger Pub Cos resisting or demanding rent could work.


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