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Topic updates

Coronavirus update: Rents – a heavy burden on firms as revenues shrink

Rents that businesses pay on leased property is usually treated as a fixed cost.

These are costs that do not change as the level of short-term production alters.

For example, the hotel chain Travelodge has an estimated £230 million annual rental bill.

The lock-down between March and June 2020 has led to many retailers deciding to withhold rent payments to landlords as a way of reducing cash outlays from their businesses.

When quarterly rent bills became due at the end of June, retailers in the UK were found to have paid less than 15 per cent of their rent.

The sandwich chain Pret told its landlords it was paying just 30 per cent of rent and other retailers are negotiating a move towards monthly rather than quarterly rent payments or rents based on turnover so that during difficult times, leasing costs drop.

Effectively, this would turn some rents into a quasi-fixed cost. The sharp drop in rental payments has cost billions for landlords. Intu Properties plc a leading UK shopping mall operator filed for administration in June 2020 as it struggled to pay back debt to lenders.

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