Property owners have been facing a huge uphill struggle during this pandemic and the government has now unintentionally made the situation much worse.
Early on, owners lost the ability to forfeit leases and then the ability to issue statutory demands for non-payment of rent. The balance between two openly contracting parties was cast aside for reasons we all understand.
The narrative, however, of avaricious property owners demonised in the media serves only to remind us that the word ‘landlord’ still carries with it a sense of feudal injustice born of high birthright, with the tenant toiling under the landowner’s yoke. What we have consistently failed to achieve as an industry is to explain that property has a far greater role in our society than the enrichment of the very few at the cost of the many. For that lack of understanding we are paying a heavy price today.
As the largest asset class on the planet, most property is directly or indirectly owned by those institutions that service our pensions and savings by matching long-term liabilities with long-term income. We are, for the most part, middlemen acting as intermediaries between savers’ capital and real estate, which we convert into cashflow to deliver dividends and capital growth.
As occupiers elect not to pay rent, even when they can, savers lose income. Additionally, lenders to those properties, also owned ultimately by the same savers, will not get their debt serviced if there is no income to do so.
Taking liberties
There are occupiers out there, often owned by private equity, that have taken advantage of this situation in a deplorable manner. Furloughing of staff, non-payment of rates and many other subsidies have been legitimately used, but withholding rent has crept in there unlawfully, as well as not paying rent. Where an occupier cannot pay we all understand, but why should rapacious owners of perfectly good businesses, who have been stripping out cash from the balance sheet for years, not be obliged to put in money when the tank is empty as a result of their actions? In good times, the tenant keeps all the upside but in bad times, it’s the property owners who have to suffer the loss.
Those gaming the system will not pick up a copy of the code, let alone read it
If a profitable tenant company did not have sufficient reserves pre-Covid, because its balance sheet had been hollowed out by its owners, then why is it fair that it should benefit from the same subsidies and protections afforded to those companies that have been prudent and kept reserves for a rainy day? If a firm’s shareholders have stripped out reserves and replaced them with debt, sometimes to ensure offshore owners do not pay any tax, why should they be protected?
A CVA is a process meant for the genuinely sick but has been abused by the financially healthy, encouraged to do so by the fact that property owners are often obligated to accept material rent reductions or lose their tenant completely. To compound the insult, distressed fundraisings result in those putting in cash getting the equity; so why does that not apply with CVAs, where the owners might be putting in all the cash in foregone rent, but the business shareholders retain 100% of the equity without investing a penny?
The new property landlord and tenant code of conduct will be, I regret, despite the significant efforts of our industry representatives, a toothless document. Those gaming the system, as so many will this quarter day, will not pick up a copy of the code, let alone read it.
The code has to set out rigorous, mandatory terms of engagement. Failure to do so must be followed by the sanction that the tenant loses the protection and benefits afforded it by the emergency legislation. Only then will we see parties come to the table.
We need to talk more loudly about what we do as an industry, and our pensions colleagues need to join the rally and call out this abuse of the system. Maybe government will listen to them.
Nick Leslau is chairman of Prestbury Investments
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