London’s Southbank Centre, where the Royal Festival Hall is located, said it had to protect its income to survive
London’s Southbank Centre, where the Royal Festival Hall is located, said it had to protect its income to survive © Rod Olukoya/Alamy

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UK landlords including the Royal Festival Hall and Legal & General have begun taking unpaid rent from tenant deposits as a way round a government ban on legal action to recover the money.

“This supposed charity . . . is digging their sticky fingers into rent deposits [and] behaving in the least charitable way possible,” said Hugh Osmond, the investor behind the Strada Italian chain, which has a restaurant at the Royal Festival Hall.

The unusual step is the latest salvo in a battle for survival being waged by landlords and tenants in the hospitality and retail sectors. Property owners are reluctant to squeeze tenants and risk being left with an empty property, but many are under pressure from their own lenders.

The government banned landlords from taking legal action to recover unpaid rent in March. This is due to expire in December but the RFH and L&G are among those skirting the ban by taking cash from tenant deposits and demanding that deposits are topped up or repaid.

The Southbank Centre, of which the RFH is a part, said it had suffered “significant losses” during the pandemic and had to protect its income to survive. “We carefully follow the terms of our contracts and any actions we take are always fully compliant,” it said.

Vanessa Goh, who runs Rice Guys, a street food business in Bermondsey, and had taken out a lease on a centralised kitchen in December, said that the landlord, Legal & General Property Partners, had deducted two quarters of rent from her deposit and was pushing to double the rent at the 5,000 square foot site next year.

She described the situation as “ridiculous”.

L&G said: “Whilst we have an important role to play in helping our occupiers manage their way through the current crisis, we must also protect the pensioners whose money we look after.”

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Graham Pack, a chartered surveyor who advises on commercial property leases, said: “Normally, the rent deposit deed will say: if you don’t comply with your [rental agreement] we can draw down on the deposit.”

Coronavirus legislation prevented landlords “sending the big boys in”, but did not protect deposits, he said.

Mandy Yin, who runs two restaurants in Islington, said the landlord of one, a Jersey-based company called Sola 9, had taken £7,950 in rent out of her £15,900 deposit — to cover the last quarter’s rent — and demanded she repay it in full.

“I feel at a complete loss and feel completely let down by the government. It has done nothing to help us small businesses struggling to fight unscrupulous landlords,” she said.

Sola 9 did not respond to a request for comment.

UKHospitality, the trade body, is lobbying for the government moratorium on landlords evicting tenants or using legal action to recover rent to be extended until the end of June.

But Melanie Leech, chief executive of the British Property Federation, said that with commercial rent arrears expected to grow to £4.5bn by the end of December this would be devastating for landlords.

“Property owners continue to face growing pressure on their businesses, with little support from the government, yet having to absorb significant financial losses for most of this year that will affect the millions of savers and pensioners invested in property,” she said.

One fund manager warned that extending the moratorium would be a trigger for lenders to take action against landlords that had breached their debt agreements, which might ultimately mean taking over their properties.

“Lenders have held back because of the reputational issues but are now taking a more aggressive stance . . . The debt funds are already reaching for the trigger.”

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