Article published in the British Retail Consortium (BRC)* once again opens up the debate on the rent payment methods. The convention has been that rents are paid quarterly, but tough economic conditions have often forced the hand of landlords, particularly in the commercial retail sector to often agree to periods of monthly payment of rents. This has often been a two way street of compromise.
The tenant often has been experiencing the brutal effects of a recession and poor results as a consequence of drop in sales, thus being faced with the choice of closing down the business, going into Administration or selling the interest at loss.
Given such an unforgiving scenario seeking help from the landlord to allow for monthly payment of rent has often been one way of surviving and pulling through tough periods. For the landlords part, it often is the better of the two possible options – the possibility of an empty unit if the tenant goes bust or the possibility of an occupied unit, albeit for a period of rental payments being received in smaller monthly instalments. Such arrangements are usually relatively informal affairs and run for an agreed period of between 3, 6, 9 or even up to 12 months. Landlords often require for the retail tenants to provide turnover figures to support their application and matters are monitored closely with both parties actively co-operating.
There have been some in the retail sector, the most notable voice in recent times, the retailer Phillip Greene.
The resistance to such change could be based on a number of factors, the two obvious are that very many leases that have been drafted based on the older principals of property law and would either need to have new provisions added on by way of a deed of variation, which could result in costs, in some instances this could be quite significant.
The second reason, also cost related and much more direct, is that the administration costs for charging and recovering rent on a monthly basis could quite significant.
The BRC survey indicated a slow but steady increase in monthly rental terms, certain the rise from some 3% back in 2008/09 to some 12% by 2010 shows that the conventional method may be slowly losing its grip.
However, the obvious and very apparent element that is noticeable here is that monthly terms are mainly agreed at lease renewal points, during the negotiation process when the tenants has the opportunity to impose terms, particularly in a market where the landlord is in the weaker position.
There may come a time when it is the norm for retail tenants to have leases with monthly payment provisions for rent, as a standard term, but as yet it still is one which is in its somewhat early stages and still subject to some resistance.
* http://www.brc.org.uk/details04.asp?id=1862
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