What does the end of the lease forfeiture moratorium mean for retail?

The lease forfeiture moratorium came into play in the wake of the coronavirus pandemic, eventually extending to commercial tenants and landlords. This meant that retail businesses in financial difficulty would be protected against legal action, such as eviction if they couldn’t cover rent payments due to Covid-19.

The industry was hard-hit with a raft of temporary restrictions that ground footfall to a complete halt, along with revenue. As the economic blowback from Covid-19 upended financial targets and consumed company reserves, the retail sector was arguably the hardest hit as physical shopfronts were obligated to close their doors for the indefinite future.

The moratorium on the forfeiture of commercial leases, part of the Coronavirus Act 2020, was rolled out on 26 March 2020 and is pencilled in to end on 25 March 2022. As retailers slowly recover from the economic calamity, footfall gradually climbs to pre-pandemic levels and workers return to the office - the ‘new normal’ is in sight for the retail sector.

What’s the commercial lease forfeiture moratorium?

As the coronavirus pandemic cut off fundamental income streams that poured into the retail sector, the onus was on the government to mitigate the financial burden on UK retailers which led to the lease forfeiture moratorium.

This restricted commercial landlords from reprimanding tenants unable to afford rent due to Covid-19 cash flow problems. As the powers of commercial landlords were neutralised, retailers could focus on financial recovery whilst shielded from the threat of eviction. Now that the moratorium is due to end, what support can you plug your business with to avert the possibility of lease forfeiture?

Rent payments – a growing concern for Covid-19 hit retailers

The retail industry comprises almost 5.1% of UK GDP and almost 30% of high street stores across the UK are retail stores. When the first lockdown hit in 2020, the total volume of retail sales in Great Britain fell by 1.9% in 2020 compared with 2019, the largest fall since records began, according to the Office for National Statistics (ONS).

This pushed many retailers into a state of peril due to dwindling cash flow, leaving many unable to meet essential costs, such as rent, which makes up the largest expense for retail businesses.

To illustrate the precarious financial position of retailers, here’s an overview of the annual rental cost of a prime high street retail unit in Q2 2021, priced per square foot metre and according to Statista.

  • London West End, Bond Street – £2175
  • London West End, Oxford Street – £750
  • London City – £260
  • Manchester – £220
  • Birmingham – £190
  • Cardiff – £150
  • Leeds – £150
  • Bristol - £100

Retail warehouses often reside over thousands of square feet which rapidly multiplies operating overheads. While the annual cost of rental per square foot of prime retail real estate was £220 in Manchester and £260 in the City of London, the cost took a colossal leap to £2,175 for a highly desired West End spot on London’s Bond Street.

The pandemic pushed the final nail in the coffin for businesses already on the brink of insolvency.

The Centre for Retail Research totted up the high profile retail casualties of 2021, which included the administration of high fashion house, Ralph & Russo, later bought out by a US investment firm in July 2021. Victoria's Secret UK went into administration in 2020 and has since been liquidated, while the online business continues in operation. Paperchase also changed hands in ownership, closing 37 stores with the loss of hundreds of jobs.

The state of British retail footfall

While retailers reminisce a time when shops brimmed with customers, current footfall levels are steadily growing, with headway to make to match pre-pandemic numbers.  

Chief Executive of British Retail Consortium (BRC), Helen Dickinson, said:

"UK footfall led the major European economies in February [2022], as the steady return to the office increased shopper numbers in many towns and city centres.

“Retailers, large and small, will welcome the return of customers to their stores – a sign their innovation and investment in their physical and digital offerings is working.”

According to British Retail Consortium (BRC) and Sensormatic IQ data, retail footfall in the UK decreased by 17.1% in January year-on-two-years (Yo2Y). Shopping centre footfall declined by 37.5% (Yo2Y) and retail parks saw footfall decrease by 13.0% (Yo2Y).

Although this marks a slow start to 2022, workers returning to offices is massively supporting the growth in footfall, although changes to permanent working styles, such as remote working and working from home will likely dampen footfall targets.

What help is available for UK retailers?

Rescue and recovery for a UK retail business can take the form of a formal insolvency procedure, also known as a Company Voluntary Arrangement (CVA). A CVA can provide a gateway to formal negotiations with creditors to devise an affordable payment plan.

Company finance is also available to provide greater flexibility to retail businesses. There are many commercial finance options available, such as invoice finance, asset finance and business loans.

A licensed insolvency practitioner can support retail businesses in financial distress by stabilising the company, reassuring creditors and restructuring the business.