Accountancy group Azets has warned an end to landlord restrictions on unpaid rent may trigger a wave of commercial tenant failures.
Restrictions on winding up petitions for the pursuit of unpaid commercial rent will be removed from April 1.
They were introduced by the Scottish Government in response to the Covid pandemic.
The current 14-week notice period for terminating leases is also due to expire on April 1.
According to James Fennessey, partner with Azets in Scotland, the changes could lead to a spate of tenant insolvencies as businesses already struggling with soaring costs face new rent demands.
Tenants and landlords will be forced to have difficult conversations that in many cases could result in the closure of a business.”
Mr Fennessey said: “During the last two years, Covid debts were ring-fenced to encourage consensual repayment plans – leaving landlords with little option but to agree rent reductions and deferrals and waive arrears to preserve long-term income.
“However, when these protections are removed in April, tenants and landlords will be forced to have difficult conversations that in many cases could result in the closure of a business.
“As a matter of priority, worried commercial tenants should review their balance sheets and undertake an urgent cash flow assessment to identify declining working capital, problems with paying employees or suppliers and pressure from creditors.
“We would encourage tenants to focus on effective working capital management, maintain open dialogue with landlords and prioritise any funding requirements arising from Covid debts.
“Tenants could also seek to refinance via debt or equity, providing breathing space and maximising the prospect of a turnaround.”
But Mr Fennessey also warned commercial lenders are unlikely to fund tenants struggling with a lack of liquidity, accrued debt, including government loans, and low borrowing capacity.
He added: “This scenario will, unfortunately, force commercial tenants to consider an alternative lender with very high interest rates, or equity finance on a distressed asset value basis.
“This will come with numerous prohibitive restrictions.
“While Covid loans, support packages and interventions staved off many business closures, their removal is now exposing businesses already under severe cash flow and working capital pressures.
“We would encourage any commercial tenant concerned with their financial position to seek advice as early as possible in order to maximise the prospects of securing the long-term survival of the business.”
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