As the UK coronavirus (Covid-19) lockdown enters its second month with no end in sight, many art and antiques dealers and galleries—particularly in London—are struggling to pay hefty rents for the premises they cannot even enter, let alone trade from.
For many smaller galleries it is make-or-break time; if they do not get some form of rent relief now, be it a rent reduction, hiatus or total waiver, they will not survive. And many galleries argue that helping them out in the short term is in the long-term interests of their landlords.
“Landlords have to worry; some of their tenants will go out of business if they don’t help,” says Christopher Battiscombe, the director general of the Society of London Art Dealers (SLAD). “It’s a very tough time for the art trade—most have absolutely no income coming in and we don’t know when that’s going to change.” SLAD is encouraging its members to tell their landlords about the example set by some who have taken a proactive approach to rent relief, such as Grosvenor Estates, which has waived the current quarter rent (including service charge) for its gallery tenants—the measures may extend past June if needed. One Grosvenor tenant, Rodeo, closed its Mayfair space (which only opened in January) on 13 March due to worries over the spread of coronavirus and its director, Katy Green, says that Grosvenor was “very fast” to respond with its Covid-19 Retail Support Plan. “We know that the situation with all landlords has not been the same, we believe that all landlords should follow in Grosvenor’s footsteps to do all they can to help galleries and all smaller businesses,” Green says. James Raynor, the chief executive of Grosvenor Britain and Ireland, says: “We waived the March quarter’s rent and service charge because so many of our tenants in Mayfair and Belgravia are independents, like Lindsey Ingram or the Rodeo Gallery. Support for the art galleries was particularly important because culture is at the heart of our vision for this part of London. It’s what animates a place and gives it real identity.”
Other major central London landlords who are waiving rents this quarter include British Land and Westminster City Council. The leader of the last, Rachael Robathan, even distributed a letter, noting these waivers, to help tenants lobby their landlords and “encourage other landlords to do the same.” Meanwhile, The Pollen Estate, which owns much of the area around Mayfair’s Cork Street and Saville Row, is taking a case-by-case approach. “Our objective is to make sure that all our stakeholders including galleries, tailors, restaurants, cafes and indeed some office occupiers who are struggling make it through this crisis and beyond,” its property director Julian Stocks tells The Art Newspaper, adding that he is “expecting we will need to offer a mixture of rent free periods, rent deferments and perhaps monthly rents when businesses open again. My main focus is to help the smaller businesses first.”
“Our rent [around £50,000 per month] is almost a quarter of our fixed overheads and our biggest fixed monthly outgoing,” says Jacob Twyford, a director of the Cork Street-based Modern and contemporary art gallery Waddington Custot, which is trying to negotiate a rent waiver for this period and a revised rent for the next few years. “We’re paying for a retail presence in a prime location, which at the moment is unusable due to the lockdown.” He predicts: “It’s going to take galleries a couple of years to get over this, if they survive.”
Daniel Crouch, a St James’s based dealer in rare antiquarian books and maps, is also trying to negotiate a rent waiver for his Crown Estate-owned space which he sub-lets from the Christie’s auction house. With sales currently down 90%, Crouch says: “Without financial assistance as proposed by the UK government, I will have to lose three members of staff on 1 June.” Should the situation remain the same until October, Crouch says he will have to “lose three more staff and close one of my two galleries.” And if the lockdown persists until early spring next year, Crouch says, “it will cease to be economically viable for me to keep an open shop, and I will work from home: 11 people will have lost their jobs, and Christie's will have lost a valuable tenant.”
In response, a Christie’s spokeswoman says: “We are discussing a rental holiday or concession at this time with our landlord [The Crown Estate]. Negotiations are ongoing and we will be better placed to discuss rental waivers and deferrals once the outcome of these discussions is known.” However, they add that Christie’s is “not pursuing payment of this quarter’s rent” and: “No action will be taken to collect any rent arrears until normal business activity has resumed, at which point we would hope to work with tenants to agree a feasible repayment plan as appropriate in each case.”
Meanwhile, James Cooksey, the director of The Crown Estate’s Central London portfolio, told The Art Newspaper yesterday: “We’re focusing particularly on those for whom we can make the most meaningful difference, such as the smaller, independent businesses, who we believe are facing particular challenges at the current time. This includes a number of our gallery operators in the West End, to whom we are in the process of offering support.”
While the great estates may feel societal pressure to be charitable, smaller operators who tend to own the cheaper, quirkier spaces rented by smaller galleries, are less likely to feel morally obligated or financially able to give rent reductions. That is the view of David Hoyland, the director of Seventeen Gallery which is based in a former garment factory in Haggerston, East London. He says: “I wrote to my landlord [requesting a six-month rent free period] but I got a bizarre response from his lawyer which basically said ‘we don’t even know how long this is going to go on for, it might blow over in a couple of weeks.’” Hoyland says his landlord “went straight to scare tactics” and negotiations are ongoing. “I think all small galleries have been pretty stressed for some time,” Hoyland says. “The coronavirus lockdown is amplifying and exacerbating structural problems within the industry.”
The artist Stacie McCormick founded Unit 1 Gallery Workshop in White City, West London, in 2015. Now she is stuck—she cannot open and works from recent shows and residencies cannot be collected. But her rent (of around £8,000 per month) has not stopped and she is concerned “that even if I wanted to shut down, I wouldn’t be able to move a thing or pack and move to storage. The option to leave is not really possible.” She is hoping for a pause in rent but asks: “Who do you write to? The agent doesn’t want to approach the landlord because their job is to make money for him. I’m currently endeavouring to find a direct line to my landlord to appeal directly.” She adds: “I know our situation is not unique and feel like a rent stop across the board would allow us all to return post lockdown.”
So, what can galleries do? We asked some lawyers to give some advice (note, the below applies to UK law only)
How can I negotiate a rent waiver, reduction or holiday with my landlord?
Start a dialogue with your landlord as soon as possible—and get everything in writing. “Good communication is key to reaching a fair settlement,” says Paul Brecknell, a partner at Withers. “If you have not paid rent, you should explain why and offer to discuss with your landlord how best to achieve an outcome which maximises the sustainability of both businesses. If you act openly and reasonably, there is a greater prospect of your landlord doing so.”
Landlords are more likely to be open to negotiation if the tenant has leverage, says Pierre Valentin, a partner at Constantine Cannon: “If the gallery is genuinely in financial difficulty and could be pushed into insolvency, the landlord might not want to take the risk of loss of rent, an insolvent tenant in possession and, eventually, a vacant space that may well be difficult to rent for the foreseeable future. The landlord might also be receptive to a threat to break or not renew the lease if either is allowed in the near future.
Valentin has contributed to ArtTactic’s UK Art Market Expert Guide: How to Respond to the Covid-19 Crisis? (available to download here) in which he lays out the options available to galleries as follows:
· paying rent monthly rather than quarterly
· paying in arrears, rather than in advance
· a rent-free period for three to six months (“If the landlord objects to a rent-free period, the tenant could suggest that those rental payments are spread over the period of 3-6 months following the re-opening of the premises”)
· a rent reduction of, say, 50%
· the landlord drawing on the tenant’s original deposit instead of collecting rent
· permanently or temporarily converting rent to a turnover-only basis
Brecknell adds that it is important to reach a fair compromise: “Some landlords are willing to grant rent holidays for the current quarter, but generally only to tenants with modest turnovers.” Others, he says, “will want something in return, for example an extension of the term by a quarter or a wholesale renegotiation of the lease terms. To assist tenants' cash-flow, most landlords seem willing at least to accept a deferral of rent or payments monthly, rather than quarterly, in advance.”
If I simply stop paying rent, am I at risk of being evicted or prosecuted?
In simplified, layman’s terms, you are unlikely to be evicted immediately, but you could be prosecuted in the future. As Rudy Capildeo, a partner at Charles Russell Speechlys, explains, the Coronavirus Act 2020 prevents landlords from terminating commercial tenancies by forfeiture (i.e. by instructing a bailiff to change the locks or by issuing forfeiture proceedings in court) or eviction for non-payment of rent until 30 June (this could be extended).
However, Capildeo adds, other enforcement options for landlords have not yet been restrained: “Whilst gallery tenants are not at risk of being prosecuted as non-payment of rent is not a criminal matter, landlords may serve a statutory demand or present a winding-up petition for non-payment of rent if the gallery tenant is a company. In addition, a landlord may withdraw money in accordance with the terms of any rent deposit which they hold and ask a tenant to top up the rent deposit if the terms of the rent deposit permit.”
However, Andrew Chesser, a partner at Withers, says, “tenants can still be sued for rent which will result in a court judgment” and it could affect your credit rating. So, Chesser adds, “while stopping payments may seem a natural initial step, it may not be a sustainable one.
After I requested a rent reduction, my landlord demanded to see details of my gallery’s finances—am I legally obliged to relinquish these?
No, but it might help your case if your accounts show the gallery’s turnover is suffering. “Unless there is a contractual requirement in the lease, which would be unusual, there is no basis for a landlord to force a gallery to disclose its finances during rent reduction negotiations,” Capildeo says. However, he adds, doing so might help with negotiations. Valentin agrees: “If the gallery has large reserves, why should the landlord agree to a rent reduction? By contrast, if the tenant shows that they have no reserve, the landlord is likely to be more generous, especially as it is not in the landlord's interest to have an insolvent tenant in their premises.”
What else should I consider?
Check your insurance policy because, Capildeo says, it may cover business interruption. If so, the terms will need to be reviewed very carefully to assess whether the wording of the insurance policy would cover the closure of premises due to a pandemic. In addition, he says, “an insurance policy may contain terms requiring a gallery to notify insurers if premises are left closed and empty. It is important that relevant terms are complied with to avoid issues if it is necessary to make a claim under an insurance policy.”
Claims must be made promptly— generally within 14 or 30 days of the event giving rise to it, in this case forced closure due to the lockdown—Valentin says, and if you are in doubt as to whether your policy covers it, make the claim, then seek the advice of a broker: “Generally, business interruption policies in England only cover loss resulting from physical damage to premises and exclude the economic impact of pandemics. However, that is not always the case. There may be a clear exclusion for pandemics, there may be no exclusion at all, or the wording may be ambiguous.” But Valentin cautions: “Galleries should be prepared to see their claim rejected because insurers are likely to face an avalanche of claims and they may not be able to honour all of them.”
Details on protection from eviction for commercial tenants can be found here.
All details of the UK Government’s financial support schemes for businesses during coronavirus can be found here.
This page includes links to further information about the following:
· applying for the Coronavirus Job Retention Scheme (furloughing)
· support for the self-employed through the Self-Employment Income Support Scheme
· support for businesses who are paying sick pay to employees
· the business rates holiday for retail hospitality and leisure businesses for the 2020 to 2021 tax year (no action needs to be taken, this kicks in automatically)
· the Small Business Grant Scheme—a one-off grant of £10,000 to enable a small business to meet its costs, granted by local authorities to firms that already pay little or no business rates
· deferring VAT payments
· deferring self-assessment tax payments
· what to do if you cannot pay your tax bill on time