Retailers paying rent monthly?

By Clive Bleasdale on Feb 10, 09 04:38 PM

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Clive Bleasdale discusses commercial tenancy agreements in the current market.

THE MAJORITY of retailers are struggling with business in the current climate and an increasing number would like to pay rent on a monthly rather than quarterly basis.

Landlords have been getting nervy at the prospect and at the moment a question I'm being asked a lot is if a landlord has flatly refused such a request, is there any legal challenge that can be brought?

So if you are a retailer in this situation, it is worth considering the following advice.

A landlord is entitled to insist payments are made in compliance with the provisions in the lease.

Generally the provision in a rack rent lease will be for the tenant to make payments of rent and service charge (plus VAT where appropriate) in advance at quarterly intervals on the usual quarter days.

Successfully challenging the requirements of the Lease is remote - if not impossible - unless there is any argument that a tenant may use that the Lease is invalid for some reason.

To question the validity of the Lease may be an unwise option as it could result in jeopardising the tenant's occupancy.

However, as a result of the current financial climate it is understandable that tenants (particularly retailers) are carefully considering cash flow issues and are asking landlords to accept payments on a month by month basis. These requests will increase in number as the economy continues to look bleak.

Where a landlord is asked to accept monthly payments there may be more commercial sense in doing it to assist the landlord's own cash flow, rather than not receive payment at all or run the risk of an empty property and empty rates if a tenant becomes insolvent and a landlord is forced to terminate the Lease.

The possibility of negotiating an alternative rental contract may also be easier for tenants in a falling market because if a landlord terminates and re-lets your property, not only will they be faced with a rental void until the premises are successfully re-let, but also the prospect of re-letting at a lower rack rent.

Although there are potential disadvantages for a landlord agreeing to accept revised payments, these issues can be overcome if both parties co-operate together in properly documenting any compromises agreed to, reflecting the economic reality of both parties to the Lease.

Clive Bleasdale is head of the property department at Weightmans LLP