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A win-win solution to the commercial rent crisis - another LL bailout ?


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Another massive bailout for landlords proposed ? 

interestingly they mention the Crown ownership of land, which could be an ultimate weapon in times of crisis like these and IMO, need to be removed by parliament asap . Ultimately. the whole meaning of freehold could be percieved as a fraud  

"In fact, in English Law, all land is owned by the Crown. The term ‘freehold’ is not absolute ownership, rather the right to occupy a piece of land free of any dues to the Crown." 

A win-win solution to the commercial rent crisis

https://medium.com/iipp-blog/a-win-win-solution-to-the-commercial-rent-crisis-13ed1755d6a8

Quote

..One way of permanently reducing the rent problem would be for the Government or Bank of England to buy up commercial land from distressed landlords who would receive a long lease to operate or develop buildings on the land, in return for an annual payment on the rental value of the land.

As with Quantitative Easing and the recent Covid Corporate Financial Facility (CCFF), the Bank of England could hold commercial land assets off its own balance sheet in a discrete entity with the assets underwritten by the Treasury to protect the Bank.

Valuations could be made to separate land value from building value, and the National Valuation Office would be required to maintain this register with new assessments of value every two years. Big data and AI are making accurate estimates of land value a much simpler activity.

In March this year, HM Treasury floated the idea that land value could be used as the basis for valuation in proposed reforms to Business Rates. Property taxes are already assessed on land values in Denmark, New Zealand, the United States and Canada.

The Bank of England could then offer a year’s holiday on the payment of the annual rent, as long as the erstwhile landowner passed on this rent holiday to their tenants.

This would give all parties time to recover their cashflow, and adjust to the new normal. After twelve months, landowners would continue to charge the agreed annual rent to their tenants.

Commercial leases are often written with a five year ‘upwards only’ review clause. Assuming the value of the land increased before the five-year review, the landowner would have to pay the higher land value element to the Bank and would not be permitted to pass it on to the tenant.

The first payment for the land rent would be payable after 12 months — annually in arrears, rather than quarterly in advance.

The Bank of England, for its part, having created new money to purchase the land, would retain the land value as an asset — an asset arguably more secure than the unsecured commercial paper and corporate bonds issued by companies qualifying for the CCFF. So far almost £18 billion has been issued by the Bank of England via this scheme.

The Bank in turn will be able to pass on this annual land rent to the government to fund the recovery from Covid-19.

Commercial owner occupiers could be given the same opportunity to sell their land to the Bank, and receive an interest free injection of capital into their business.

Once again, the annual land rent would be paid after twelve months, while from this point there might be an option to pay monthly, for a small discount. They too, would become leaseholders.

In fact, in English Law, all land is owned by the Crown. The term ‘freehold’ is not absolute ownership, rather the right to occupy a piece of land free of any dues to the Crown.

The effect of this scheme would be to re-introduce an annual land rent in return for the security of tenure granted by the lease. The occupier would continue to enjoy these rights in return for paying rent.

At some point, the scheme could be reversed — with the leaseholder required to pay a new lump sum to the Bank, for the ‘freehold’ at a value to be assessed at the time of the payment.

Most likely, this would be in better economic times, which would of course mean higher land values and a decent return for the government.

Alternatively, the government might wish to consider shifting towards a permanent commercial property leasehold system as a means of capturing the economic rent from land value appreciation for the public purse.

A number of Asian economies, including Singapore, Hong Kong and South Korea operate commercial leasehold schemes and retain public ownership over commercial real estate.

This brings in significant development revenues and enables more strategic planning in support of industrial policy...

 

Edited by Saving For a Space Ship
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is this like the airline bailouts - because all the aeroplanes will clearly disappear overnight if they didn't get bailed? Just like the shopping centres will clearly evaporate if commercial landlords don't get bailed.....

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58 minutes ago, Si1 said:

why can't commercial landlords just go bust? because they're tories?

Not quite that simple. Pensions.

https://www.bbc.co.uk/news/business-53156586

Quote

 

Recent research by Estates Gazette, a commercial property weekly, showed that as much as 60% of all UK retail space is owned either directly or indirectly by the public, including pension funds, the public sector and individual shareholders.

It's been a secure form of income until now.

 

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1 minute ago, Si1 said:

That includes my pensions, but they're diversified and they'll just have to take a bit of a write down. How would it be fair otherwise?

Oh I agree, but Pension write-downs are, shall we say, politically sensitive.

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27 minutes ago, Sour Mash said:

The virus  situation is now being used across the board to gain advantage by all manner of VIs.

The economy was shite and due for the Mother of all Crashes, but Chinese Flu now gives governments a grand excuse to bail everyone out yet again.

Not that I'm complaining about Trump screwing US taxpayers to push up the value of my pension funds, but it does seem a bit excessive.

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  • 10 months later...

Where is the moral hazard in this?

Working man - loses job and claims benefits - gets called a 'scrounger' and is told he's a failure

Corporate LL and Tory donor - Here's a bailout, don't worry we'll get the stupid feckless tw*ts to pay for it

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50 minutes ago, Saving For a Space Ship said:

estimates of 1/3 of retail rent unpaid - £3 billion owed 

Landlords now suing tenants who they think can pay 

Radio 4 now 

 

commercial renters eviction ban ends June 30th . 1 in 7 shps empty 

https://www.thecaterer.com/news/hospitality-rent-moratorium-ends-job-losses-closures 

"A survey of UKHospitality members, which include over 730 companies, found 52% have not been given any extension to pay rent. Nearly three-quarters (73%) are either unable or don't know how to pay their rent arrears, and 40% have been unable to reach a deal with their landlord on rent concessions."

Time for pain and any can kicking is just delaying the inevitable and its better for the staff to get looking in peak summer than in the winter.

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4 minutes ago, msi said:

It's worse than Moral Hazard, this becomes a prime target for arbitrage - buy up cheap commercial lets and get paid by BoE

Yep i have also seen that some big names have elected not to pay rent.

I assume this is on the I owe you x million you have a huge problem now negotiating position.
 

Loads of empty units so can move about with ease also.

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On 25/06/2020 at 08:02, Saving For a Space Ship said:

Another massive bailout for landlords proposed ? 

interestingly they mention the Crown ownership of land, which could be an ultimate weapon in times of crisis like these and IMO, need to be removed by parliament asap . Ultimately. the whole meaning of freehold could be percieved as a fraud  

"In fact, in English Law, all land is owned by the Crown. The term ‘freehold’ is not absolute ownership, rather the right to occupy a piece of land free of any dues to the Crown." 

A win-win solution to the commercial rent crisis

https://medium.com/iipp-blog/a-win-win-solution-to-the-commercial-rent-crisis-13ed1755d6a8

 

If commercial tenants are struggling to pay rent...how about residential tenants ?

 

It's all too good to be true.

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There’s a big hole in the current pension scheme. Literally nobody knows where the money to pay all those boomers pensions will come from. I suspect a lots of those assets are being priced at a price that it’s nowhere near its fair value now. Properties are priced based on the cash flows from rents and leases. Where does the cash flow stand now? This is the key question. The big next scandal will be all the RIETs business, pension funds are full of these products. They are basically tax free shells on properties. And again it’s the government feeding the bubble. someone in Parliament should at some point raise the point and ask why if you invest in property and gov debt you basically pay 0 taxes while if you put money on the FTSE firms pay taxes on their revenues plus any capital gain and dividend tax on the investors’ side. 

Edited by NoHPCinTheUK
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