They would say that, wouldn't they?

Item 1, from Business Insider:

WeWork's CEO said your desire to go to an office depends on how "engaged" you are at work.

Sandeep Mathrani, who stepped in as CEO of the coworking startup last year, said that people most comfortable working from home are the "least engaged" with their company, while the "overly engaged" want to go to the office.

Is he seriously trying to guilt trip people into paying rent?

Item 2, from the BBC:

Queen's Speech 2021: Key points at-a-glance

A Dissolution and Calling of Parliament Bill will get rid of the fixed five-year period between general elections and return the power to call early elections to the prime minister.

Wow. This law came in under the Tory-Lib Dem coalition in 2011. David Cameron stuck to it, and called a General Election after his five years were up (which he won convincingly). Then his successors called snap elections in 2017 and in 2019 and made a mockery of the whole thing. It must be one of the least observed laws in living memory.

Plans to force voters in Great Britain to to prove their identity when they vote at general elections will be introduced in an Electoral Integrity Bill

A Judicial Review Bill will set out the government's plans to change how its decisions can be challenged in the courts

I do not like either of these at all, but that's Tories for you (and I'm not saying that Labour haven't been just as authoritarian).

Outbreak of common sense at HMRC

From Landlord Today:

An accountancy firm is warning Airbnb landlords they may be investigated following a decision by the short lets platform to share data with HM Revenue & Customs.

The Grunberg & Co accountancy practice says that in reporting its tax affairs to HMRC - in the shape of its accounts to December 31 last year - Airbnb has also agreed to share data for the two preceding tax years.

Alexander Kossoff, a partner at Grunberg, says so-called ‘hosts’ for Airbnb may wish to ensure their tax affairs are in order as a voluntary disclosure to HMRC could help to reduce any potential fines.

The comments are surprisingly supportive of the move, but there are those who don't get it:

Paul Barrett: Short term holiday lettings could easily transfer to spareroom.co.uk or other short term letting sites although spareroom does all types of letting. If the AirBnB platform isn't used then lettings cannot be detected.

Robert Brown: In that case, HMRC will (eventually) turn their attention to spareroom.co.uk. I know that they do occasionally focus on small local holiday letting agents where there are lots of holiday lets and flex their muscles. I enjoyed witnessing this happen in a popular Open Golf venue a few years ago, with a healthy six or probably seven figure sum extracted from many home owners cashing in on five figure rentals from golfers and spectators.

Why HMRC haven't always been trawling all these possible data sources - letting agents, banks which do buy-to-let loans, HM Land Registry (to identify owners of multiple homes), local councils and insurers (where council tax bill or insurance bill is sent to a different address), housing benefit departments - remains unknown.

We own land, give us money!

Emailed in by Lola, from The Telegraph:

Landlords, shops and restaurants have joined forces to ask the Government to step in and pay commercial rents to help them survive the coronavirus pandemic.

Trade bodies have been in talks with ministers about proposals that would see the Government fund up to 50pc of rent and services charges owed by businesses in the retail, hospitality and leisure sectors. These “Property Bounce Back” grants would be targeted at businesses worst affected by lockdown.

It is estimated that about £3bn of rent owed to commercial property landlords for the six months to September will not have been paid, laying bare the acute pressures faced by landlords and tenants.

His comment was "Aaarrghh!" Not much I can add to that.
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Spotted by Mombers at HPC, a question at Property118:

Reluctant landlord (wot?): I note that the LHA rates have been increased from 1st April 2020 – March 2021. A couple of questions…

2. Are any landlords now upping their rents in light of this LHA increase going forward?

PT: If like me, you have tenants on LHA rates, which previously was on average 20-30% below private rental rates, then I see no harm in increasing the rents where the increase will be picked up by the benefit system... It also brings the rents inline with what the property should rent for.

WP: Just thought of another question - if a rent increase will not effect the tenant at all in regard to any top ups (they currently do not pay anyway) - can I notify HB/DWP myself direct? If it is not for the benefit of my tenants, asking them to contact the department about the rent increase will fall on deaf ears....

TBH adds "If you ever needed reassurance that we are on the right side, this thread is ideal." Again, there's not much I can add to that.

Yeah! Go retailers!

From The Guardian:

Landsec, the property group behind the Trinity Leeds shopping centre and Bluewater in Kent, said struggling retailers paid less than a third of the rent due last month.

Retailers paid only £9m of the £31m rent due on stores on 24 June, which equates to 29% of the total. This time last year its retail tenants paid 92% of the bill.

I'm sure that the £9 million they actually received is enough to cover their actual running costs (repairs, maintenance, security etc), so what's the problem? The land and buildings will still be there, unlike tenant businesses who won't be if landlords hound them for every last penny.

They own land! Give them money!

It had to happen, I suppose...

From the FT:

In a letter to Rishi Sunak, the chancellor, a coalition of the UK’s biggest retail chains and property owners warned that “many viable companies” will file for administration if the government does not intervene further, causing job losses and a “devastating impact” on high streets.

“We have come together, as voices of both commercial tenants and landlords, to propose that the government introduces a scheme of rental support for the space that has in effect been furloughed, just as staff have been,” said the letter, from the chiefs of the British Retail Consortium and the British Property Federation...

The two industries want the government to support a “furloughed space grant scheme” where the state would cover the fixed costs of businesses that have experienced dramatic falls in turnover. Similar schemes have been set up in Denmark and other European countries.

The groups have proposed a sliding scale of partial payments to cover property costs, which would still leave some of the burden on the tenant and landlord.

Best of luck with that, you insufferable twats.

From The Telegraph:

A landlord is taking legal action to shut down Pizza Express over unpaid debts, sparking new fears for the future of the ailing chain.

Grainrent has filed a winding-up petition against the business in the courts as high street tensions grow amid a collapse in business during the lockdown.

Unless Pizza Express pays back what it owes, this process would normally lead to a hearing on whether to liquidate the company - putting as many as 14,000 jobs at risk in 627 restaurants.

Gainrent's parent firm London and Cambridge Properties said it remains open to compromise with the chain.

The legal action began on Friday ahead of new rules that came into effect on Monday banning the use of winding-up petitions if a company cannot pay rent bills due to coronavirus.

Good idea; good idea; bad idea

Good idea

Paul Ormerod in City AM:

Here is a great opportunity for the government to both increase the level of human capital in the economy and be seen to be delivering for the "left behind". There are already rumours that the chancellor is planning a big increase in spending on FE in the March Budget.  

Investment in university students has gone well past the point of diminishing returns. In contrast, the neglect of the FE sector offers the chance of getting a real return on increased spending.

The obvious beneficiaries will be the young people who do not go to university. With extra skills, they can earn an "FE premium". It may be modest, but being able to earn even £10 an hour instead of the minimum wage makes a big difference to the individual concerned.

Good idea

From The Daily Mail

Prince Andrew was urged by lawyers today to 'get on a plane' and answer questions from the FBI as part of a reciprocal deal that would see US spy's wife Anne Sacoolas sent to the UK where she is accused of killing teen Harry Dunn.

The demand was made in an extraordinary press conference in New York where Lisa Bloom, lawyer for alleged victims of billionaire paedophile Jeffrey Epstein, teamed up with Dunn family lawyer Radd Seiger in an attempt to break the stalemate that has ensnared both of their cases in political red tape.

A publicity stunt, but an excellent one, even better if it works. The UK is way too keen to extradite people to the US, or let the threat hang over UK citizens' head for years and years (Gary McKinnon, Hound of Hounslow etc), funny how that doesn't apply to Prince Andrew. The US never sends anybody back, but that woman quite clearly killed somebody.

Bad idea

Also from City AM:

The [Retail Sector Council] report is expected to include several recommendations, including the proposal to raise corporation tax by two per cent to raise around £6bn a year by 2022/23.

According to Sky News, the extra revenue would be used to reduce the business rate multiplier to around 40p in the pound. Other proposals cover VAT reform and tax and property cost transparency.

Robert Hayton, head of UK business rates at real estate adviser Altus Group, said the move to increase corporate tax and reduce business rates would be an "eminently reasonable fiscally neutral solution".

The actual rental value is a fairly fixed figure and is shared between landlord and government. The tenant doesn't care how it's split.  A corporation tax change does not affect total rents as they are paid out of pre-tax profits.

Let's do a worked example and see who gains or loses from this, using premises with an actual rental value of £21,000, which is currently split into £14,000 to landlord and £7,000 to government (50% of £14,000). Under their suggestion, it would be split £15,000 to landlord and £6,000 to government (40% of £15,000).

Winner #1 - the landlord, who currently gets £14,000 less 19% corporation tax = £11.340. That would go up to £15,000 less 21% corporation tax = £11,850.

Winner # 2 - owner-occupier business with low profits (pre tax or rent) of £40,000 who owns such premises. Current net profit after Business Rates and corporation tax = £26,730. That would go up to £26,860.

Loser #1 - tenants - the higher their profits, the bigger the hit..

Loser # 2 - owner-occupier business with high profits of £100,000 (pre tax or rent) who owns such premises. Current net profit after Business Rates and corporation tax = £75,330. That would go down to £74,260.

Not huge numbers, but a marginal gain for landlords and unprofitable owner-occupier businesses, and a tax hit for tenants and profitable owner-occupier businesses.

That's the spirit! (fixing the High Street)

Emailed in by Lola from Ipswich Star:

The Edinburgh Woollen Mill, in Buttermarket, Ipswich, looks set to be the latest national brand exiting the town.

Large signs have appeared in the store's windows which state: "This store is closing down - all stock must go". owever, the store's message is somewhat contradicted by a much smaller sign underneath which reads: "Subject to landlord negotiation". This is a tactic The Edinburgh Woollen Mill has employed before and used at dozens of stores across the country.

Earlier this year similar signs appeared in the windows of Peacocks fashion store, in Carr Street. But despite having the signs up for most of the year the store, which is owned by The Edinburgh Woollen Mill, still seems to be going strong.

It appears the signs are introduced as a result of annual negotiations of new leases in a bid to strike a better rent deal with landlords.

Retailers are gradually cottoning on to this tactic, in the medium term, it will work, hopefully.

LVT (as opposed to Business Rates) would give landlords the required kick up the arse and accelerate the process. LVT on any high street would be based on average rents being actually paid by normal tenant businesses. For charity shops (which are arbitraging the 80% Business Rates reduction for charities) and vacant premises, each landlord would be asked how much rent they are holding out for (assuming the premises were rented to a normal business) and would pay LVT based on that amount. If they pitch too high, they will be overpaying LVT; if they lowball, then the council can ensure that the premises are actually rented out for that amount and a local business gets its foot in the door.

The theoretical optimum rent (and hence optimum LVT receipts) on any high street is the highest figure that landlords can demand before shops start falling vacant, which leads to a downward spiral. In the real world, the optimum is "a bit less than that".

LVT will encourage landlords to find that optimum:
- LVT will tend to push rents down a bit. A rational landlord is indifferent between a) charging £40/sq ft rent and paying £30/sq ft LVT and b) charging £35/sq t rent and paying £25/sq ft LVT, either way, the landlord nets £10/sq ft.
- LVT will also push rents up a bit. If all other landlords are charging £35/sq ft, fixing the LVT on all shops at £25/sq ft, clearly a minority of landlords will go for £36 or £37, while still only paying the £25 LVT and thus netting £11 or £12.

But so what? If rents fall below that theoretical optimum, at least there will be shops and jobs in the area; the council's loss is local business' gain, and not local landlords' gain.

Presumably, there are some High Streets where the maximum rent that can be demanded is less than it costs to maintain the buildings, these areas are beyond the margin and are very difficult to revive. Reducing other taxes (in particular VAT) would revive at least some of them, which is all part of the plan (LVT could largely replace VAT).

"University to be turned into student housing"

OK, The Daily Mash is exaggerating, but there is a lot of truth in this.

The student's landlord makes a lot more profit than the universities they attend, who, taken as a whole together with Student Loans Company and the taxpayer, probably make a cash loss (which is fine, as long as higher education benefits society as a whole).

The Lad is now in halls on campus (two minute walk from front door to lecture theatre or laboratory block), cost £5,000 a year rent plus £9,250 tuition fees, and I'd rather the university makes the profit (or taxpayer takes a smaller loss) than some slumlord cashing in on owning something near a university.

But the university might as well just charge an all-in-price of £14,250, like at boarding school, where the fees cover education and accommodation, and have done with it.

The "unlimited supply of high-income tenants" conundrum

Jamie Ratcliff (on Twitter), links to the BBC article about changes to Section 21 (i.e. reinstating the original pre-1996 position):

The Residential Landlords Association (RLA) said its survey of 6,400 landlords suggested that 84% of its members would be more selective, picking tenants on higher incomes and leaving those earning less to fight over fewer properties. Landlords could even decide to let fewer homes to tenants with pets, as they would be considered as carrying a higher risk of causing damage.

and points out the obvious flaw in their logic:

It's interesting that landlords groups seem to think there are unlimited numbers of dual-income households ready to take the place of low income tenants (& tenants with pets).

I suppose this is the flip side to the Disappearing Homes Conundrum. Common sense tells us that landlords will always prefer higher income tenants to lower income tenants, whatever the rules are. Lower income tenants have always been at the back of the queue. Do they seriously expect us to believe that so far they have been turning away higher income tenants?

The Disappearing Homes Conundrum

... is trotted out again by the National Landlords Association:

The NLA is opposed to the abolition of Section 21

To highlight the short-sightedness of this policy to Government, we’re launching a postcard campaign to tell the Prime Minister directly the impact this will have on the market...

Without Section 21, many landlords will leave the market. This will have a negative impact, both for landlords – many of whom have invested in property as a pension alternative – and for tenants, who will face lower supply, higher rents and increased personal and credit referencing requirements.

Richard Lambert, CEO of the NLA, says:

“Landlords currently have little choice but to use Section 21. They have no confidence in the ability or the capacity of the courts to deal with possession claims quickly and surely, regardless of the strength of the landlord’s case. England’s model of tenancy was always intended to operate in a sector where Section 21 exists. This change makes the fixed term meaningless, and so creates a new system of indefinite tenancies by the back door."

I wouldn't call it "by the back door", this is exactly what is intended. Indirectly, it is the government's aim to prise some landlords out of the market, because one fewer potential Labour-voting tenant means one more potential Tory-voting owner-occupier*. It will be the higher earning tenants who make the leap, so the average income of - and rent paid by - the remaining smaller pool of tenants will be lower, not higher. Which is the opposite of what The Disappearing Homes Conundrum predicts.

* There is an upper limit to Home-Owner-Ism in a democracy as you need a majority of households to be owner-occupiers to vote for this bullshit. Without this natural brake, the ultimate stage of Home-Owner-Ism would be a handful of people owning all the housing and everybody else would be paying them rent.

Oh the irony...

Emailed in by Lola, a video on how Amazon is buying up vacant shopping centres, the ones that went out of business partly because of online shopping ( or 'glorified mail order' as I call it, to put it in context), and using them as warehouses/distribution centres, and presumably collection centres for people in a hurry.
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Also emailed in by Lola, from The Telegraph:

The perilous state of Sir Philip Green’s retail empire has been laid bare in a 312-page tome sent to landlords as the former “king of the high street” pleads with them to help save Arcadia from going bust.

The document reveals that Arcadia’s earnings have crashed from £215m to just £30m in the last five years – a fraction of the £100m of extra costs, including pension contributions and debt interest, it is on the hook for...

Landlords' response: “We are not minded to support Philip Green ­because he took a perfectly good business and extracted money rather than investing.”

Pots, kettles.
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From the BBC, this morning:

Meanwhile another leadership hopeful, Home Secretary Sajid Javid, has vowed to recruit 20,000 new police officers.

Writing in the Sun, Mr Javid says: "More police on the beat means less crime on our streets. Not exactly rocket science is it?"

BBC Reality Check says, under the Conservative and coalition governments, the number of police offices has fallen by somewhere between 19,000 and 22,000.

I'm not sure why the BBC even bothered to link to the source of the figures for the reduction, this is more or less common knowledge.

"That would be grossly unfair on good landlords, who are the vast majority in this country"

From Hansard, debate on Tenant Fees Bill, 23 January 2019:

Bob Blackman Conservative, Harrow East:

The issue for us was that four weeks [maximum deposit] would lead to a position whereby the tenant had an incentive to say, “Okay, I won’t pay the last month’s rent—just take it out of the deposit,” and then if the landlord could reasonably wish to claim money from the deposit because of damage or other reasons, they would have to pursue court action to recover it.

That would be grossly unfair on good landlords, who are the vast majority in this country.

Other members of the Committee promoted six weeks, so we ended up with the view that five weeks struck a balance between giving tenants an incentive to pay their last month’s rent, in the knowledge that they would get back their deposit had they been good tenants, and landlords being forced to go through a proper claim process to recover moneys as a result of damage by a tenant.

He's wrong in principle and wrong in logic. If a tenant has wrecked the place and plans to move out soon, then whether he's paid three, four, five or six weeks' deposit, he won't bother paying the rent any more, and he either leaves of his own accord or waits until he is evicted.

I thought that most tenants didn't bother paying the last month's rent* anyway, which makes perfect sense. They need the money for the deposit on the next place. Landlords and letting agents often wait weeks before returning a deposit to those tenants gullible enough to pay the last month's rent. If the tenants pay it, it is often very difficult for them to scrape the next deposit together, so they can't move out at all. Catch 22.

* I used to be a BTL landlord, most of them didn't bother paying the last month's rent, so I kept their four-week deposit instead, never bothered me and everybody's happy.

"UK rents fall for first time in a decade"

Via HPC Survivors FB group, from The Guardian:

Rents across Britain fell in 2018 for the first time in a decade, offering relief for tenants after years of inflation-busting rises. Figures from the Deposit Protection Scheme – a government-backed group that supervises tenancy deposits – showed the average rent fell by £9 (1.17%) from £774 in 2017 to £765.

The typical UK tenant spent 31% of their income on rent in 2018, a fall of 0.5% from the year before, the DPS said. The biggest percentage fall was in Yorkshire and the Humber, where the average rent dropped by £21 (3.63%) to £546. London recorded the biggest fall in cash terms, with the typical property rented at £1,294 a month, down £30 from a year ago...

Dan Wilson Craw, the director of the campaign group Generation Rent, said: “Falling rents are great news and, despite constant warnings of increases from the property industry, these figures demonstrate that landlords can’t simply demand more whenever they want to."

Exactly, well said Dan.

Here's the fun bit:

Landlords said demand from EU nationals had slowed, but insisted rents would have to rise in 2019 to claw back money lost through buy-to-let tax changes (1) and the letting fees ban (2), which comes into force in June.

John Stewart of the Residential Landlords Association said: “Rics has warned that with demand outstripping the supply of rental properties, rents could increase in 2019 by an average of 2% (3). Certainly we are seeing shrinking investment in the sector because of the extra taxes being levied on landlords."

What planet is he on?

1) There are two buy-to-let tax changes:

- tax relief for interest is being restricted, making the effective, after-tax, interest rate paid on BTL mortgages up to one-third higher. Rents didn't fall post 2008 when interest rates plummeted, why would they increase now? It might even act like LVT and encourage landlords to get homes rented out ASAP instead of long void periods, pushing down rents.

- landlords have to pay an extra 3% SDLT when they buy another home. This doesn't affect the homes they already own, so statistically has little impact. When deciding how much to pay, landlords find out the potential rent, multiply it up and deduct the SDLT. The extra SDLT pushes down prices and does not push up rents.

2) Let's assume that if letting agents can't exploit people desperate for somewhere to rent, they will bump up the commissions they charge landlords. Maybe so, but...

- there are plenty of landlords who deal with tenants directly, who will be unaffected. Some will decide that paying a letting agent even more of the rent is not worth it and will also deal with tenants directly.

- even if rents go up a tick to cover higher letting agent fees (unlikely), tenants will break even (save on letting fees, pay slightly higher rents), so no biggie.

3) What was the landlord lobby predicting a year ago?

RICS’ UK Residential Market Survey for July reports a continued drop in the number of new properties coming on to the market – the eighth consecutive quarter in which property numbers have dwindled.

It suggests that the dearth of properties on the market is a sign of the growing number of smaller-scale landlords exiting the rental market due to tougher tax rules. With tenant demand remaining strong, this had led to rising rents for tenants, with rents predicted to go up by just under 2% over the next 12 months and by up to 15% by 2023.

So they were predicting average rise 3% a year for five years. The first year was actually a fall of 1%, why don't they stick to their guns and 'predict' that rents will rise by 4% a year for the next four years, to get back to their original plus 15% claim.

Questions to which the answer is no.

Via @SOLZ_ZYN, from Property 118, article reproduced in full:

Negative equity – are the banks responsible?

A few of my houses are coming to their end of term and the lenders want their money back.

They knew my exit strategy was refinance or sale, but now they don’t seem to recognise any responsibility for the negative equity.

When the banking crisis occurred it followed naturally that house prices dropped dramatically as lenders either folded (albeit bailed out by the government) or sold their book to others. (Not necessarily even lenders).

The banking crisis was caused by reckless lending and the banks ran out of money and were unable to continue their business. The bankers have apologised unreservedly for their error of judgement. Great! But now when some areas are still struggling with negative equity they should (in my opinion) extend the mortgage for a lifetime. Or if they want to recoup their capital reduce the amount owing to an amount that would enable refinancing.

The FCA do not regulate buy to let mortgages, however, the mortgage is a contract. In contract “every contract has an implied contract term that the lender will perform the contract with care and skill”. Surely lending recklessly and being unable to sustain your business, which then has the knock on effect of destroying the value of my investment, is lacking in the performance of care and skill?

There is so much more I can add to this argument but would like to hear a reasonable response that says I’m wrong. I just cannot see it any other way.

But would appreciate your comments.

Gwen

New car list prices v headline rents

Good news is, Her Indoors went to look at the big new car the dealership offered her in place of the 'old' (i.e. new, she's only had it for two and a half years) one. It was more or less identical, except the front seats are a bit comfier so she's going to stick with what she's got.

Which brought us onto the topic of list prices. These are fantasy numbers. Most people either haggle a discount for cash; receive an overly generous trade-in for an old banger; a load of extras; and interest-free finance deal with 'deposit paid' or whatever. The ones the dealers really can't shift are sold to themselves for list, and then bought back second-hand and sold as ex-demonstrator models (or something, it's more complicated than that).

We have a client which arbitrages this. They buy such cars for their list price and (for example) also buy bulk advertising space in newspapers for a discount to the rate card. Instead of paying the dealers cash, they give the dealers a credit, which they can use to buy advertising space at below rate card (but above what the client paid).

It's all about keeping up appearances.

There was a fine article in the FT a week ago that says commercial landlords do exactly the same thing:

Something strange happened in UK retail property this spring. Stores fell like dominoes: Toys R Us UK and Maplin, the electronic outlet, entered insolvency; fashion retailer New Look closed dozens of shops in a company voluntary arrangement, followed by Poundworld and maternity and baby outlet Mothercare; retailer Marks and Spencer has announced store closures; and department store House of Fraser began preparing for retail closures. But despite the exodus of tenants, according to listed companies and published indices, rents on retail stores appeared to be rising.

When demand takes a plunge, intuitively one would expect the opposite. So how was that possible? MSCI, the index provider, reported retail property rental growth of 0.9 per cent for the three months to the end of March and 1 per cent for each of the two quarters before that. Intu, a shopping centre landlord, said in February that its estimated rental values were up by 1 per cent in 2017. The property agency CBRE said rents for shopping centres were up 1.4 per cent in 2017 and 0.1 per cent in the first quarter. There is value in these numbers, but they do not tell the full story.

The figures are based on what property people call “headline rents” — a figure that appears in contracts between landlords and their tenants. But headline rents do not take account of the various incentives from the landlord to the tenant. For example, it is standard to offer a rent-free period when a store (or office) opens, which generally lasts six months and can be as long as a year. At the same time, leases are getting shorter and lease breaks more common. If a landlord rents to a shop on a 10-year lease that can be broken after five years, with a one-year rent-free period, that incentive suddenly amounts to a fifth of the income a landlord can rely on receiving.

But there is more. Landlords also offer cash incentives to businesses, so a lease might actually begin with a transfer of money from landlord to tenant, not the other way round. This contribution, often used to fit out the store, can amount to another 10 per cent of the value of the lease — or sometimes even more, agents say. Like the rent-free period, it is not included in the headline rent, which may in turn be used to calculate the “estimated rental value” of properties, a figure representing the rent you could reasonably expect to receive on a new lease. 

Incentives tend to vary through the property cycle, increasing when conditions for landlords are tough. For obvious reasons, landlords can be reluctant to share what incentives they are offering. So the total cost of renting a store is likely to fall when chains are closing and landlords are struggling to fill space — without any effect on the headline numbers...

For more specifics in the UK, try the latest results from Next. The retailer has more than 500 shops in the UK and Ireland and is vocal about the rent drops it is securing from landlords. Among 19 stores where leases were renewed in 2017-18, Next said net rents, taking into account capital contributions, were down 28 per cent. During the same period, indices showed rents across the market rising about 1 per cent. In 2018-19 Next anticipates it will secure rent drops of 27 per cent, not including the 10 shops it will close altogether.

Mike Ashley - 1: Landlords - 0

From the BBC:

House of Fraser's flagship Oxford Street store will now stay open after the chain's new owner agreed revised terms with its landlord. The store had been due to close under a restructuring plan that House of Fraser announced in June...

The store was one of the 31 earmarked for closure under the CVA restructuring deal that was first struck before Mr Ashley stepped in with his £90m rescue bid...

Property giant CBRE, which is advising Sports Direct, said negotiations over the Oxford Street outlet had been conducted at "great speed.. This deal only happened because all parties realised it was better to keep the store open and fully operational. It was a real case of landlord and tenant genuinely working together and at great speed. Everyone was sensible about the terms of the transaction."

It's about making a credible threat. The landlords blinked first. Well done, Mr Ashley.

The disappearing homes conundrum

Via @HenryPryor, from Property Industry Eye:

Supply of rental properties has hit its highest level so far this year, but fewer tenants seem to be searching, say letting agents.

The May Private Rented Sector Report from ARLA Propertymark shows that letting agents had an average of 186 properties per branch last month, up from 179 in April and the highest figure for 2018.

However, demand also fell to a new low of an average of 60 prospective tenants per branch, the lowest figure since last December when 59 registrations were recorded.

Glorious bit of landlord squealing

From the BBC, a few highlights:

Six thousand jobs are at risk in a drastic attempt to save [House of Fraser] from collapse. If the rescue plan fails, administration is likely. But High Street landlords are furious about the way they're being treated. They are the creditors who have to shoulder the burden of financial losses.

Many properties are owned by institutional investors who rely on store leases to provide a steady income stream for pension funds and insurers. Take the House of Fraser store in Milton Keynes. It's part of a shopping centre co-owned by Hermes Investment Management. Its rent generates long-term funding for two big pension schemes.

"Landlords are in an invidious position. We enter into these long-term contracts in good faith, with pensioners' income and security often at stake," says Chris Taylor, head of private markets at Hermes Investment Management.

House of Fraser is using what's called a company voluntary arrangement (CVA), a form of insolvency proceedings, to overhaul its business...

The plan requires approval from 75% of its unsecured creditors. All creditors get a vote, but the value of the vote depends on how much they are owed.

Under insolvency rules, landlords' claims are already heavily discounted because of how accountants judge their losses. The issue for landlords is that their "say" or voting rights in the CVA process is discounted by a further 75%, which they believe is grossly unfair.

The BBC understands that even if most landlords vote against the plan, they won't have enough clout to win the day.

"With landlords' voting power reduced by 75% of the value of their claims, the dice are clearly loaded against them in the CVA process," says Mark Fry, from the restructuring firm Begbies Traynor... "Even if the majority of landlords were to vote against the CVA, that would not be enough to stop it being approved in its current form, leaving landlords taking all the pain of the CVA process whilst House of Fraser's shareholder takes out £70m."

I'd never heard of that reduced-votes-for-landlords rule, but it sounds eminently sensible to me.

Pity the poor landlords.

Emailed in by SG, from The Guardian:

High street landlords are gearing up for war with retailers, whom they accuse of railroading them into agreeing to rent cuts via increasingly controversial company voluntary arrangements (CVAs).

Struggling businesses including the department store chain House of Fraser, the children’s retailer Mothercare and the Carluccio’s Italian restaurant chain are all seeking CVAs, where property owners accept lower rents to help a tenant avoid financial collapse.

Good, as the alternative is the parasite killing the host. Nice to see that retailers have woken up to the fact that they pay a lot more in rent than they do in Business Rates; there's no point whining about the latter if you can do something about the former.

But we've covered that point before, here's the classic bit of Home-Owner-Ist one-sided economics:

Begbies Traynor partner Mark Fry said: “Landlords represent pension funds, investment funds – they’re spending the ordinary man in the street’s money. So when rents aren’t paid, that affects the performance of these funds. It’s not just about rich property owners.”

That cuts both ways.,,

Begbies Traynor partner Mark Fry said: “Shares in retailers are owned by pension funds, investment funds – landlords are taking the the ordinary man in the street’s money. So when high rents are enforced, that affects the performance of these funds. It’s not just about rich business owners.”

Fact is, if pension funds own the right mix of retailers and land-and-buildings, they couldn't really care less how this pans out. In fact, it is better to err on the safe side, which is lower rents and higher returns from their retail investments, than it is to wipe out the value of their retail investments by trying to enforce high rents, and then ending up just owning a load of empty buildings.