McRent Arrears: McDonald’s seeks rent cut from landlords

May 27, 2020


2 min read

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What's going on here?

McDonald’s has entered negotiations with the landlords of some of its UK sites. The fast-food chain, whose global sales surpassed $100bn in 2019, is seeking support from its landlords as it looks to reopen some of its stores after closing due to the Coronavirus pandemic.

What does this mean?

McDonald’s has announced that it has paid all rent owed in full for the current quarter but is seeking support from its landlords for the next. A spokesman for the company said: “We have opened dialogue with some of our landlords to discuss how they might offer support on rent and service charges for a short period due to our restaurants not trading”.

Around three-quarters of the business’ outlets remain open around the world but the remainder have been temporarily shut down, including in the UK, France, Italy and Spain. McDonald’s also announced that as a result, first-quarter sales are down approximately 3.4% in comparison to the same period in the previous year.

What's the big picture effect?

McDonald’s will inevitably not be the only business that seeks to enter negotiations with its landlords. The retail and hospitality markets in many countries around the world are almost entirely shut down. Without a stable source of income, it will be hard for many of these businesses to make ends meet. Smaller businesses in particular will inevitably struggle to meet often onerous rent demands. 

Unfortunately for many businesses, the Coronavirus pandemic, while unfortunate, will have little impact upon their obligations to pay rent. Many commercial leases stipulate that the forced closure of the building – and consequently the business operating within – does not warrant a reason to withhold rent. It is also uncommon for commercial leases to include force majeure clauses, which are commonplace in most contracts and bring a contract to an end when events outside the control of either party occur. Another option for tenants would be to argue that the tenancy agreement has been frustrated. A contract is “frustrated” when an unforeseen event renders the parties’ obligations impossible. However, proving frustration is exceptionally difficult, and as of yet no cases of frustration have been successfully argued in the UK in relation to a lease.

The most practical approach therefore is for tenants to negotiate with their landlords. Often, landlords will be accommodating of requests from struggling tenants. However, the government has recognised that the risk of landlords using aggressive rent-collecting tactics is high. As such, the Coronavirus Act 2020 includes provisions which ban landlords from using statutory demands and winding-up orders to claim outstanding rent during the crisis. The Act also allows commercial tenants to delay paying their rent in full, as long as they owe no more than three months of rent. 

Such measures are clearly beneficial to the high street and will undoubtedly protect many businesses from going under. However, the worry exists that landlords may suffer as a result of this. Large businesses, fully capable of paying rent on time, may still choose to delay or demand renegotiations. In such situations in the short term, businesses may have the upper-hand.

Report written by Matthew Leake

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