Landlords getting tough with so-called ‘rent rebels’ could force 5,834 companies out of business and trigger £326m worth of insolvent debt that further decimates city centres, according to analysis from the UK’s No.1 insolvency score, Red Flag Alert.
Concerns are mounting that April will see companies fighting for survival after a COVID-19 moratorium on evictions ends on 31st March 2021 and business rates start again after a 12 month tax break for retail, hospitality and leisure businesses.
The end of these support measures is likely to see landlords demanding quarterly rent payments on 1st April and taking tougher action against non-payers, which forces struggling companies out of business.
Managing Director of Red Flag Alert, Mark Halstead, said: “There’s been a lot of focus on bars, restaurants, hotels and retailers being impacted by the end of coronavirus support measures in the coming months. However, the potential impact runs much deeper and a wide range of businesses that typically thrive in city centres, occupying vast commercial property space, such as financial services and professional service firms are also under threat.
“Our analysis shows that 145,855 such companies are at risk and based on 17 years of crunching corporate financial health data, that even in a typical year, around 3% to 4% of companies in financial distress will go on to fail. Conservatively, this means that April could signal the end of the road for 5,834 companies.”
Further Red Flag Alert analysis shows that when a company can no longer trade and is declared insolvent, they owe an average of £55,949 in outstanding debts. This could mean April triggers the start of £326m worth of invoices for goods and services going unpaid and negatively affecting other companies throughout supply chains.
Mark Halstead adds: “We’ve analysed a variety of corporate failures of all shapes and sizes in recent months and found a common trend of unpaid rents since March 2020. This means we can expect to see a wave of Commercial Rent Arrears Recovery (CRAR) procedures from April, as landlords who have been left out of pocket seize control of tenants’ assets for liquidating to cover outstanding rent arrears.
“This action will lead to many more empty commercial units in city centres, whether that’s offices, shops, pubs or restaurants. When lockdown is finally relaxed, this could still leave city centres desolate as they’ll be even fewer reasons for people to visit for work or leisure. Unfortunately, this impacts neighbouring businesses and continues the cycle of business failure and insolvency.
“Extending Government coronavirus support is not necessarily the answer, as this only props up struggling businesses and doesn’t solve the problem of insolvent debt. The answer is to stimulate and incentivise city centre living and working.”