Not paying your rent is usually a bad thing. It leads to threatening letters from expensive lawyers. Litigation. Dispossession. And costs. So can it ever be a sensible tactic? For care home operators facing “unsustainable” rents, the answer is ‘perhaps, time will tell’.
For many, many months now, we have been hearing about the parlous state of a large proportion of the UK’s care homes. With budgets stretched thin by successive belt-tightening by impoverished local authorities, many companies without a suitably sizable stream of private payors have faced problems.
Sooner or later, we have heard for a while, the operators were going to push back, leaving the landlords with a difficult decision.
Contractually, the landlords are in the right. The rent, and increases, are there in black and white and clearly enforceable. But if your tenant is teetering, is there really a benefit in pushing it into the red? Especially if this means your chances of getting anything from the company is severely reduced?
It certainly isn’t worth it if there is no suitable tenant to replace them. What do you call a nursing home without staff and tenants? A liability?
This is the gamble being weighed up by Four Seasons at the moment as it deliberately failed to pay millions of pounds in rent to landlords this month as part of its rent negotiations – its argument being that lower rents will make for a more sustainable business, leading to more sustainable returns for landlords.
Will this tactic succeed? So far at least, the landlords appear to be talking terms, not threats. Landlords appear reluctantly sympathetic to these issues – as a quick look at what happened with UK hospital operator BMI last year (getting a 40% rent reduction and owner Netcare’s subsequent exit) highlights.
There appears little point in shooting the goose that is laying the golden egg, perhaps. Especially if, once shot, there will be slim pickings for dinner.We would welcome your thoughts on this story. Email your views to David Farbrother or call 0207 183 3779.