It is that time of year again; the one that many commercial property tenants will dread – when three months rent is paid in advance. Some may think this is a joke, as the quarterly rent payment falls on April Fools Day, but unfortunately this is no gag.
Every three months, on 1 January, 1 April, 1 July and 1 October, many commercial property tenants pay their next three months rent upfront to their landlords. However, with many retailers struggling, will all businesses be able to meet the deadline?
One retailer currently in the headlines that cannot pay their rent is GAME, who has recently gone into administration. The company currently owe £21 million in unpaid rent – but we do hope yours is not quite so much.
But what can businesses do to ensure they can make the deadline for commercial property landlords?
According to R3, a business recovery body, tenants should first negotiate with their landlord to avoid insolvency. Moving to a monthly rental plan to ensure that finances can be forecasted more efficiently may also help.
Frances Coulson, President of R3, said “Negotiating with your landlord is [the] key to staving off insolvency, although of course Directors must take care to avoid wrongful trading. Perhaps more businesses could pay rent on a monthly or ‘pay as you go’ basis so retail businesses are able to plan their cash flow more effectively.
“This is more likely to apply to newer leases however.”
R3 are also campaigning for clarity on what payments are actually owed, as currently landlords can demand rent for a whole commercial property, even if the tenant only uses part of the building. As Mr Coulson states: “We are also calling for greater clarity surrounding the issue of rent due in the event of an insolvency and whether it counts as an expense of administration.
“Adding rent as an ‘expense of administration’, the specific costs of actually trading the business, makes this rescue scenario less viable.”
Do you pay quarterly rent payments for your commercial property, or do you pay on a monthly basis?
