Business Is Tough For Commercial Landlords

The current economic climate is putting commercial landlords under enormous pressure.

The plight of those landlords in the retail sector has perhaps been the most widely publicised as more and more empty shops appear on the High Streets where retailers have either ceased trading or moved out of expensive and badly performing outlets.

The problem for landlords is the double pressure of receiving no rent for their empty properties while still being liable for paying expensive business rates. Currently business rates are calculated at approximately 40% of estimated annual rental value, putting a considerable burden on landlords.

Recently Dixons, owner of Currys and PC World, revealed that it had agreed with some of its landlords, to pay rent of just 1 a year in exchange for Dixons continuing to pay the business rates. Dixons is not the only retailer with business rate only deals with landlords.

As tenants downsize, restructure or go out of business altogether, leaving empty industrial and office units for whom new tenants are hard to find, many comemrcial landlords are struggling. Commercial landlords still have to service their own loans as well as securing their empty premises and paying rates.

Compounding the problem is the change in attitude among lenders towards property companies. Banks generally provide property loans and they are now asking for much more equity and much better tenant covenants with evidence of a secure income when considering new or renewal of commercial mortgages.

The banks are already overloaded with vacant and distressed property assets. Although they are often reluctant to appoint Receivers to recover assets pledged as security for loans, especially while interest on the loan is being serviced, it still reverts to the bank when the borrower goes bust.

The confluence of pressure is leaving many commercial landlords completely boxed in, often with empty premises on their hands, unable to service mortgage liabilities, unable to pay business rates and increasingly dealing with creditor pressure such as winding up petitions.

Another issue is the amount of commercial property on the market. There are a large number of industrial estates suffering with 'For Sale' signs on empty as well as occupied premises. And there are few potential tenants, with most of the interest coming from firms that are downsizing.

A related issue is the number of businesses that cannot be sold because of an existing lease obligation. Often buyers want to downsize and are therefore seeking to renegotiate lease terms before purchasing the business.

Business doctors say there are formal and informal restructuring options that can be used to help commercial landlords who are dealing with vacant and loss-making properties.

However, restructuring property portfolios is a complex process and every single situation is different. This is essentially a situation that needs the expertise of a knowledgable restructuring adviser who will look at each component of the assets and debts in the portfolio as a matrix, and find the right solution for each component.

Copyright (c) 2011 Alison Withers

by: Alison Withers

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