8 ms·

'Dogfight' looms as landlords start suing restaurants over unpaid rent

38 points by finphil 7y ago

aurizon 7y ago
Yes, they hope to sieze all assets and sell the business after the UK emerges from the pandemic. One hopes the law makers in the UK will act to block this. Like snakes, the landlord's teeth point inwards. In mitigation, the landlords may well have their own mortgages to pay, and need to establich their legal position in a timely manner under contract laws, so a full governmental solution is needed.
- monoclechris 7y ago
  Please leave comments like this on reddit where they belong.
  - danharaj 7y ago
    Imagine thinking HN is any better than Reddit in 2020
    - zraako 7y ago
      It's bordering on /r/ChapoTrapHouse at this point
    - deleted 7y ago
      [deleted]
boznz 7y ago
Any form of profiteering in a crisis such as this should result in massive fines and prison time, in war time I believe firing squads were in order.
- dahdum 7y ago
  How exactly is this profiteering? They aren't demanding extra money or marking services up. They're at a high risk of bankruptcy themselves.
  - echelon 7y ago
    Businesses were told to close by the government to prevent spread of the virus, thus effectively shutting off their income. The government should shut off rent income, too. And mortgage payments. We're in survival mode. Nobody gets to make any money right now. We have to wait for the recovery to begin.
    - SpicyLemonZest 7y ago
      How are people going to obtain goods and services if they're not making any money? I suppose we could bootstrap a temporary command economy, but that seems very challenging and such economies don't have a great track record.
      - echelon 7y ago
        A few key businesses can be carved out as exceptions. It's not a hard and fast rule - we have to be pragmatic. People can't starve. You shouldn't require businesses to pay mortgages or rent. This is where the government needs to step in and provide guidance, leadership, and subsidies. It's pretty clear we're headed for a recession at this point. Forgiving debts could help reprime the system.
        SpicyLemonZest 7y ago
        Right, that's what I would refer to as a "command economy": an economy where the government cancels broad categories of monetary flows and substitutes itself as an arbiter of who should do what work. I don't think the government would be good enough at central planning for that strategy to help.
      - 7y ago
papeda 7y ago
I find this question hard to think about. Who exactly should be pricing in the risk of something like this happening? On both sides there are agents who have taken on risk. Some of the agents paying rent overextended themselves even before the crisis. Some of the agents renting space did the same. So who should take the hit? Nobody (i.e., the government)? Even that solution seems wrong -- do we really want to incentivize agents that leverage their property holdings to the hilt? My naive reaction is that the agents renting space are somehow "more able" to absorb the costs. Maybe it's because I think banks seem to be doing ok, and in my head banks are the people who lend things to people and charge fees, whereas my friendly neighborhood restaurant seems to be scrabbling harder to make ends meet. Or maybe it's because I think people who own resources are just always doing better than the people who rent them. But that's not a very convincing argument.
- FartyMcFarter 7y ago
  Both should be pricing in the risk. If I buy a house as an individual I'm taking some of the risk, but so is the bank that lends me money. We each have different risks (I can lose the house, the bank can lose the money if they can't make it back by selling it), which is fine.
  - kfrzcode 7y ago
    Honest question, how does one factor in risk for a catastrophic decline in cash flow? I'd suggest having a war chest which could cover six months expenses. I'm not a business owner though... I imagine it's probably harder to do than it is for an individual.
    - toomuchtodo 7y ago
      6-12 months of cash reserves, whether you’re an individual or business. The yield drag is offset by avoiding insolvency.
      - papeda 7y ago
        Is this reasonable to expect from a business where 6 months of cash reserves are not legally required? Can't the restaurant that saves 1 month of reserves instead of 6 months charge lower prices and still turn a profit, thus outcompeting the prudent save-for-6-months restaurant?
Ididntdothis 7y ago
I only hope that this won't lead to a situation where people and organizations with deep pockets will take over even more of the housing stock like they did in 2008.
- jasonsb 7y ago
  That's exactly what's going to happen if the prices of real estate will plummet.
- ethanbond 7y ago
  Yep, that’s exactly what will happen. One crisis closer to having a single mega landlord (or a very small class of landlords) who can charge whatever they want for your right to exist on the face of the planet. It is time to undo this with the LVT like what Singapore does (almost all land is owned by the state and leased out on 99yr leases). The net effect is that the market sets rent prices, but the revenues not due to the landlord’s actions (I.e. revenues due to nearby employment opportunities, education, or public infrastructure) go back to the state and get reinvested in the community.
dahdum 7y ago
Government should take a hit, in my opinion. It's inefficient for every individual and entity to prepare themselves against things like this, especially since government action (stay at home orders) is exacerbating it. The business "bailouts", at least the in US, are mostly just loans anyway. Taking a "too bad" stance and letting businesses cascade fail prolongs the pain and leaves the country worse off when the crisis is over.
- Justsignedup 7y ago
  In that argument case, what about average citizens? Businesses seem to get bailouts when they fail because of unforeseen circumstances, but citizens are left to pay the bill. so in the end it is either fair, or someone takes a bigger hit.
  - dahdum 7y ago
    Average citizens in need should (and are in many places) getting grants instead of loans. If the government lets businesses fail because they won't issue loans, more people lose their jobs and require grants. Much more cost effective to keep businesses alive.
- koolba 7y ago
  That’s fine going forward but it’s not priced in yet so it’d be get another unfunded liability. It’s like extending unemployment benefits to gig workers who never paid any unemployment tax.
- FartyMcFarter 7y ago
  > Government should take a hit, in my opinion. Government means "everyone who pays taxes". I'm not sure that's fair. I think it's fine to spend taxes rescuing people (including the business owners if they're in personal trouble), but rescuing businesses feels like a very different story.
  - chrischen 7y ago
    Businesses exist to serve people—both customers and as employers. In this case the businesses are also the ones being sued, and people only get affected because the business gets sued.
raincom 7y ago
This is what happens when people drink the deadly cocktail mix of low interest rates and leverage. A landlord who has paid off mortgage can afford his tenant to not pay rent for a couple of months. That's not how the world is running now: REITs, individual landlords, partnerships, etc--all of them are profitable when there is a cash flow. The moment rents stop flowing under a certain limit, deleveraging starts. That's what happening in this market.
- hash872 7y ago
  What are you advocating for here- an end to mortgages? Buildings are extremely expensive, and most purchasers need bank financing in order to buy one. They typically have a certain amount of skin in the game because lenders require them to put x percent down, I doubt they're 'highly levered'. They're normally levered- that's how the real estate business works. If you get rid of leverage entirely, the only people who'll be able to buy real estate will be the enormously wealthy who can pay cash. If you're concerned about inequality, I think that this would be a much worse situation....
  - raincom 7y ago
    Low interest rate is the major factor in the inflation of real estate, thereby increasing the inequality. Bump up interest rates, and reduce the risk taking.
    - jonmartinwest 7y ago
      And criminals using real estate for money laundering.
onetimemanytime 7y ago
close the courts. Granted is their rent but this is an act of god
danharaj 7y ago
Over the past 40 years the West has fallen into a deep capitalist realism which completely erases the contingent nature of our economic system. Debt and property are not basic facts of reality, they require stable, predictable economic relations. Those are all out the window right now. It may be ideologically impossible for our governments, rentiers and financial institutions to acknowledge that the suspension of daily life means the suspension of business as usual.
- Ididntdothis 7y ago
  I think it would make sense that if businesses are told to close then to tell the landlords that rent payments will also stop. It seems pretty fair. Same for people whole have lost their job. You could also suspend rent payments for them. This may cause pain to the landlords but it seems fair to share the pain.
JonoW 7y ago
Whilst I'm sure landlords are in a tight spot too, what good actually comes from evicting any business right now? It's not like there are any new ones to take their place. Having an existing business with known revenue, waiting to restart once lock down ends seems better than hoping a new one will fare any better.
- rebuilder 7y ago
  The landlords can probably keep the tenants' deposits if they get evicted or leave before their term is up. This can mean access to quite a bit of money rather quickly. And some tenants will have fixed-term leases with the contract expiring in a few months' time - for the landlord, forcing those tenants out of the contract before that term is up can be a win, because of the deposits. Also, I don't think most businesses are literally out of cash yet. They're simply prioritizing other expenses, like wages. Landlords stand to benefit by forcing some of that money to go towards rent. From a business perspective, it would be strange if the landlords did not try to get paid.
ryandrake 7y ago
I think Warren Buffet said "only when the tide goes out do you discover who has been swimming naked". What I can't get over is that we just found out basically everyone is swimming naked. Businesses lose cash flow for one month and they can't pay workers. Workers miss one paycheck and they can't make rent. Landlords miss one rent payment and can't pay their mortgage. Banks start seeing mortgage defaults and immediately need a bailout. Everyone's broke! It's broke all the way down. If any one of those in that chain kept a little emergency fund, we wouldn't be in this situation. How did we all manage to build an economy such that we're all paying each other just-in-time to avoid catastrophe?
- pgsbathhouse2 7y ago
  > How did we all manage to build an economy such that we're all paying each other just-in-time to avoid catastrophe? Stagnate wages. And instead of raising wages, we lowered interest rates to keep the money flowing going. As we have just discovered, an entire segment of society is being propped up by the borrowing power of the "middle class" in America. We have been pulling the wrong levers, and as you've said in not so many words, our current economy is a farce. People are being fed the scraps of the economic pie. We should give the people their money; their due, proper wages. We should stop formulating economic policies on "the rich should get richer no matter what." It might not be too late to return to sound economic policies that benefit the populace and not a select few, and in return we'd have a more robust economy.
Animats 7y ago
Much of brick and mortar retail is just going to be unnecessary after this. Once everyone has online ordering set up, there will be a lot less demand. Really, who wants to go to Safeway? Buy AMZN? Maybe. Same for office space. Work from home will be the new normal for people who work in offices. People who go to work in person will do something other than use a keyboard and screen. I've been wondering for some time when we'd hit "peak office". It just happened. It's going to be a year or two before bars, restaurants, nightclubs, and sports get back to normal. Not until there's a vaccine and almost everyone has had it.[1] Or, the hard way, repeated smaller waves of epidemics until about 60% of the population has had it and the disease dies out for lack of new victims. After lockdown, we're still stuck with "social distancing" for many months. Life will go on fine. There are going to be screams from commercial real estate owners. You want to see entitlement? Talk to a landlord. Manufacturing will be fine. Services will do great. Office space and retail space will hurt. That's OK. We survived the death of malls. [1] https://www.sfchronicle.com/health/article/What-Bay-Area-residents-can-expect-after-15179657.php https://www.sfchronicle.com/health/article/What-Bay-Area-res...
- Animats 7y ago
  Other businesses on the way out: - Major League Baseball. The average age of a baseball viewer is 57, up from 52 in 2006. Just 7% of baseball’s audience is below age 18. The 2020 summer season will almost certainly be cancelled due to the epidemic. The 2021 season may be cancelled due to lack of interest. Once people get out of the habit, it's hard to get interest going again. Horse racing aged out that way. Who goes to a horse track any more? - It's going to be amusing if NFL football gets replaced this fall by Madden NFL 20. Could happen. Simulated football, played by the real coaches, with Pixar-quality rendering, on national TV? Basketball, with smaller teams, might carry on; everyone gets tested before the game, and there's no audience. "Audience insertion" in video coverage of sports could become a thing. It's often been done in movies, after all. - Boeing? Will any 737 Max ever need to fly again? People willbe moving around less in large vehicles for several years. - Cruise lines? Forget it for a few years. On the way up: - Biodefense, of course. Nobody ever shut down the whole world before. This was an accident. Somebody might do it on purpose. It's too easy to scale. That DARPA program to generate antibodies for a new virus will be a big deal. Vaccine R&D and manufacturing will be way up, with plenty of funding from many governments. Watch the anti-terrorism lobby pivot to biodefense. - Anything associated with working from home, of course. - Delivery. But expect the "gig economy" to be made more like regular employment. Expect the quality of delivery to improve. The delivery industry needs to keep the cold stuff cold and the hot stuff hot. Only Safeway and pizza delivery try to do that now.
rasz 7y ago
Obviously thats what business interruption insurance is for https://www.youtube.com/watch?v=xLJ4_CPlCr4 https://www.youtube.com/watch?v=xLJ4_CPlCr4

38 points by finphil 7y ago

Yes, they hope to sieze all assets and sell the business after the UK emerges from the pandemic. One hopes the law makers in the UK will act to block this. Like snakes, the landlord's teeth point inwards. In mitigation, the landlords may well have their own mortgages to pay, and need to establich their legal position in a timely manner under contract laws, so a full governmental solution is needed.

monoclechris 7y ago
Please leave comments like this on reddit where they belong.
- danharaj 7y ago
  Imagine thinking HN is any better than Reddit in 2020
  - zraako 7y ago
    It's bordering on /r/ChapoTrapHouse at this point
  - deleted 7y ago
    [deleted]

boznz 7y ago

Any form of profiteering in a crisis such as this should result in massive fines and prison time, in war time I believe firing squads were in order.

dahdum 7y ago
How exactly is this profiteering? They aren't demanding extra money or marking services up. They're at a high risk of bankruptcy themselves.
- echelon 7y ago
  Businesses were told to close by the government to prevent spread of the virus, thus effectively shutting off their income. The government should shut off rent income, too. And mortgage payments. We're in survival mode. Nobody gets to make any money right now. We have to wait for the recovery to begin.
  - SpicyLemonZest 7y ago
    How are people going to obtain goods and services if they're not making any money? I suppose we could bootstrap a temporary command economy, but that seems very challenging and such economies don't have a great track record.
    - echelon 7y ago
      A few key businesses can be carved out as exceptions. It's not a hard and fast rule - we have to be pragmatic. People can't starve. You shouldn't require businesses to pay mortgages or rent. This is where the government needs to step in and provide guidance, leadership, and subsidies. It's pretty clear we're headed for a recession at this point. Forgiving debts could help reprime the system.
      - SpicyLemonZest 7y ago
        Right, that's what I would refer to as a "command economy": an economy where the government cancels broad categories of monetary flows and substitutes itself as an arbiter of who should do what work. I don't think the government would be good enough at central planning for that strategy to help.
    - 7y ago

papeda 7y ago

I find this question hard to think about. Who exactly should be pricing in the risk of something like this happening? On both sides there are agents who have taken on risk. Some of the agents paying rent overextended themselves even before the crisis. Some of the agents renting space did the same. So who should take the hit? Nobody (i.e., the government)? Even that solution seems wrong -- do we really want to incentivize agents that leverage their property holdings to the hilt? My naive reaction is that the agents renting space are somehow "more able" to absorb the costs. Maybe it's because I think banks seem to be doing ok, and in my head banks are the people who lend things to people and charge fees, whereas my friendly neighborhood restaurant seems to be scrabbling harder to make ends meet. Or maybe it's because I think people who own resources are just always doing better than the people who rent them. But that's not a very convincing argument.

FartyMcFarter 7y ago
Both should be pricing in the risk. If I buy a house as an individual I'm taking some of the risk, but so is the bank that lends me money. We each have different risks (I can lose the house, the bank can lose the money if they can't make it back by selling it), which is fine.
- kfrzcode 7y ago
  Honest question, how does one factor in risk for a catastrophic decline in cash flow? I'd suggest having a war chest which could cover six months expenses. I'm not a business owner though... I imagine it's probably harder to do than it is for an individual.
  - toomuchtodo 7y ago
    6-12 months of cash reserves, whether you’re an individual or business. The yield drag is offset by avoiding insolvency.
    - papeda 7y ago
      Is this reasonable to expect from a business where 6 months of cash reserves are not legally required? Can't the restaurant that saves 1 month of reserves instead of 6 months charge lower prices and still turn a profit, thus outcompeting the prudent save-for-6-months restaurant?

Ididntdothis 7y ago

I only hope that this won't lead to a situation where people and organizations with deep pockets will take over even more of the housing stock like they did in 2008.

jasonsb 7y ago
That's exactly what's going to happen if the prices of real estate will plummet.
ethanbond 7y ago
Yep, that’s exactly what will happen. One crisis closer to having a single mega landlord (or a very small class of landlords) who can charge whatever they want for your right to exist on the face of the planet. It is time to undo this with the LVT like what Singapore does (almost all land is owned by the state and leased out on 99yr leases). The net effect is that the market sets rent prices, but the revenues not due to the landlord’s actions (I.e. revenues due to nearby employment opportunities, education, or public infrastructure) go back to the state and get reinvested in the community.

dahdum 7y ago

Government should take a hit, in my opinion. It's inefficient for every individual and entity to prepare themselves against things like this, especially since government action (stay at home orders) is exacerbating it. The business "bailouts", at least the in US, are mostly just loans anyway. Taking a "too bad" stance and letting businesses cascade fail prolongs the pain and leaves the country worse off when the crisis is over.

Justsignedup 7y ago
In that argument case, what about average citizens? Businesses seem to get bailouts when they fail because of unforeseen circumstances, but citizens are left to pay the bill. so in the end it is either fair, or someone takes a bigger hit.
- dahdum 7y ago
  Average citizens in need should (and are in many places) getting grants instead of loans. If the government lets businesses fail because they won't issue loans, more people lose their jobs and require grants. Much more cost effective to keep businesses alive.
koolba 7y ago
That’s fine going forward but it’s not priced in yet so it’d be get another unfunded liability. It’s like extending unemployment benefits to gig workers who never paid any unemployment tax.
FartyMcFarter 7y ago
> Government should take a hit, in my opinion. Government means "everyone who pays taxes". I'm not sure that's fair. I think it's fine to spend taxes rescuing people (including the business owners if they're in personal trouble), but rescuing businesses feels like a very different story.
- chrischen 7y ago
  Businesses exist to serve people—both customers and as employers. In this case the businesses are also the ones being sued, and people only get affected because the business gets sued.

raincom 7y ago

This is what happens when people drink the deadly cocktail mix of low interest rates and leverage. A landlord who has paid off mortgage can afford his tenant to not pay rent for a couple of months. That's not how the world is running now: REITs, individual landlords, partnerships, etc--all of them are profitable when there is a cash flow. The moment rents stop flowing under a certain limit, deleveraging starts. That's what happening in this market.

hash872 7y ago
What are you advocating for here- an end to mortgages? Buildings are extremely expensive, and most purchasers need bank financing in order to buy one. They typically have a certain amount of skin in the game because lenders require them to put x percent down, I doubt they're 'highly levered'. They're normally levered- that's how the real estate business works. If you get rid of leverage entirely, the only people who'll be able to buy real estate will be the enormously wealthy who can pay cash. If you're concerned about inequality, I think that this would be a much worse situation....
- raincom 7y ago
  Low interest rate is the major factor in the inflation of real estate, thereby increasing the inequality. Bump up interest rates, and reduce the risk taking.
  - jonmartinwest 7y ago
    And criminals using real estate for money laundering.

onetimemanytime 7y ago

close the courts. Granted is their rent but this is an act of god

danharaj 7y ago

Over the past 40 years the West has fallen into a deep capitalist realism which completely erases the contingent nature of our economic system. Debt and property are not basic facts of reality, they require stable, predictable economic relations. Those are all out the window right now. It may be ideologically impossible for our governments, rentiers and financial institutions to acknowledge that the suspension of daily life means the suspension of business as usual.

Ididntdothis 7y ago
I think it would make sense that if businesses are told to close then to tell the landlords that rent payments will also stop. It seems pretty fair. Same for people whole have lost their job. You could also suspend rent payments for them. This may cause pain to the landlords but it seems fair to share the pain.

JonoW 7y ago

Whilst I'm sure landlords are in a tight spot too, what good actually comes from evicting any business right now? It's not like there are any new ones to take their place. Having an existing business with known revenue, waiting to restart once lock down ends seems better than hoping a new one will fare any better.

rebuilder 7y ago
The landlords can probably keep the tenants' deposits if they get evicted or leave before their term is up. This can mean access to quite a bit of money rather quickly. And some tenants will have fixed-term leases with the contract expiring in a few months' time - for the landlord, forcing those tenants out of the contract before that term is up can be a win, because of the deposits. Also, I don't think most businesses are literally out of cash yet. They're simply prioritizing other expenses, like wages. Landlords stand to benefit by forcing some of that money to go towards rent. From a business perspective, it would be strange if the landlords did not try to get paid.

ryandrake 7y ago

I think Warren Buffet said "only when the tide goes out do you discover who has been swimming naked". What I can't get over is that we just found out basically everyone is swimming naked. Businesses lose cash flow for one month and they can't pay workers. Workers miss one paycheck and they can't make rent. Landlords miss one rent payment and can't pay their mortgage. Banks start seeing mortgage defaults and immediately need a bailout. Everyone's broke! It's broke all the way down. If any one of those in that chain kept a little emergency fund, we wouldn't be in this situation. How did we all manage to build an economy such that we're all paying each other just-in-time to avoid catastrophe?

pgsbathhouse2 7y ago
> How did we all manage to build an economy such that we're all paying each other just-in-time to avoid catastrophe? Stagnate wages. And instead of raising wages, we lowered interest rates to keep the money flowing going. As we have just discovered, an entire segment of society is being propped up by the borrowing power of the "middle class" in America. We have been pulling the wrong levers, and as you've said in not so many words, our current economy is a farce. People are being fed the scraps of the economic pie. We should give the people their money; their due, proper wages. We should stop formulating economic policies on "the rich should get richer no matter what." It might not be too late to return to sound economic policies that benefit the populace and not a select few, and in return we'd have a more robust economy.

Animats 7y ago

Much of brick and mortar retail is just going to be unnecessary after this. Once everyone has online ordering set up, there will be a lot less demand. Really, who wants to go to Safeway? Buy AMZN? Maybe. Same for office space. Work from home will be the new normal for people who work in offices. People who go to work in person will do something other than use a keyboard and screen. I've been wondering for some time when we'd hit "peak office". It just happened. It's going to be a year or two before bars, restaurants, nightclubs, and sports get back to normal. Not until there's a vaccine and almost everyone has had it.[1] Or, the hard way, repeated smaller waves of epidemics until about 60% of the population has had it and the disease dies out for lack of new victims. After lockdown, we're still stuck with "social distancing" for many months. Life will go on fine. There are going to be screams from commercial real estate owners. You want to see entitlement? Talk to a landlord. Manufacturing will be fine. Services will do great. Office space and retail space will hurt. That's OK. We survived the death of malls. [1] https://www.sfchronicle.com/health/article/What-Bay-Area-residents-can-expect-after-15179657.php https://www.sfchronicle.com/health/article/What-Bay-Area-res...

Animats 7y ago
Other businesses on the way out: - Major League Baseball. The average age of a baseball viewer is 57, up from 52 in 2006. Just 7% of baseball’s audience is below age 18. The 2020 summer season will almost certainly be cancelled due to the epidemic. The 2021 season may be cancelled due to lack of interest. Once people get out of the habit, it's hard to get interest going again. Horse racing aged out that way. Who goes to a horse track any more? - It's going to be amusing if NFL football gets replaced this fall by Madden NFL 20. Could happen. Simulated football, played by the real coaches, with Pixar-quality rendering, on national TV? Basketball, with smaller teams, might carry on; everyone gets tested before the game, and there's no audience. "Audience insertion" in video coverage of sports could become a thing. It's often been done in movies, after all. - Boeing? Will any 737 Max ever need to fly again? People willbe moving around less in large vehicles for several years. - Cruise lines? Forget it for a few years. On the way up: - Biodefense, of course. Nobody ever shut down the whole world before. This was an accident. Somebody might do it on purpose. It's too easy to scale. That DARPA program to generate antibodies for a new virus will be a big deal. Vaccine R&D and manufacturing will be way up, with plenty of funding from many governments. Watch the anti-terrorism lobby pivot to biodefense. - Anything associated with working from home, of course. - Delivery. But expect the "gig economy" to be made more like regular employment. Expect the quality of delivery to improve. The delivery industry needs to keep the cold stuff cold and the hot stuff hot. Only Safeway and pizza delivery try to do that now.

rasz 7y ago

Obviously thats what business interruption insurance is for https://www.youtube.com/watch?v=xLJ4_CPlCr4 https://www.youtube.com/watch?v=xLJ4_CPlCr4