The system of paying rent on a quarterly basis is “archaic”, says the Liverpool Daily Post in a Viewpoint column published today. And recent case law is forcing administrators to shut up shop instead of fighting for struggling businesses, it argues.
The paper notes that Topshop boss Sir Philip Green has been lobbying the government for a change to the system, and says that many retailers are currently in the process of negotiating with landlords to switch to monthly rent payments in a bid to bolster cash flow.
But last week the British Retail Consortium said it had carried out a survey showing that only 12% of retail property leases were currently on monthly rental terms, and nearly 90% of respondents who had been allowed to move to monthly terms said they had been, or would be, penalised with higher charges. The retailers organisation says it has always argued that quarterly rental terms are wrong in principle.
“As we pass the March rent deadline, when commercial tenants count every penny, there is a strong argument for allowing more flexibility in the law,” the Liverpool Daily Post says.
The newspaper says that the case of Goldacre v Nortel Networks UK has created a rigid and unhelpful regime under which administrators must operate – “one which ultimately doesn’t serve landlords or their tenants involved in an administration.”
In January, the LDP says, the High Court held that where an administrator uses leasehold premises for the benefit of creditors, the rent which relates to the period of use will automatically be payable as an expense of the administration. Even if only part of the leased premises is in use, the rent for the entire premises must be paid, with no option to apportion the rent to reflect the proportion actually in use.
“In short, if the rent falls due on your watch, you have to pay the entire obligation for the next quarter,” it adds.
Although on paper it sounds like a good deal for landlords – and, indeed, the decision has been hailed as putting landlords in a stronger position – it has encouraged administrators to simply close down businesses, rather than take that risk. The newspaper argues that this can have an adverse effect on the landlord, who now has no tenant and an ongoing liability to pay rates.
In some cases, administrators are simply delaying taking on an appointment, in order to take them past that quarterly rent date, the LDP says. “This is time that could have been spent trying to save the business, and leaves the cash-strapped business vulnerable to hostile creditor action such as winding-up,” it points out.