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Tenants Looking For Monthly Payment Terms on Commercial Rents

Tenants Looking For Monthly Payment Terms on Commercial Rents

Switching from quarterly to monthly payments has been demanded for some time in the commercial property world. The quarter-day requirement means rent has to be paid three months in advance is archaic.

Retailing boss, Sir Philip Green, has been lobbying the Government for a change to the system. Many retailers are currently in the process of negotiating with landlords to switch to monthly rent payments in a bid to bolster cash flow.

Whilst big players such as Sir Philip may have some clout negotiating with landlords, smaller operators may not. British Retail Consortium (BRC) is calling on landlords to deliver on their promises to “go the extra mile to support firms”. The BRC says, while retail tenants welcome landlords’ public commitment to be more flexible on rental terms, a recent BRC survey showed only 12% of retail property leases are on monthly rental terms. The vast majority of retail tenants are still faced with the archaic practice of quarterly rental payments upfront. 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 transfer to monthly rent has helped keep many businesses afloat during the recession. Over the last 18 months, tenants in the leisure and retail sectors in particular have been requesting assistance from landlords.

They want to ease the financial burden caused by the downturn, by seeking straightforward rental concessions. These include deferred payment, rent reductions or moving to monthly payments to ease cash flow. The flexibility shown by landlords and the success of tenants and their advisors in negotiating such terms could see a return to quarterly rental payments postponed during a gradual recovery or in some cases indefinitely

Prompted by the economic downturn the switch has become an increasingly frequent and sometimes unwelcome reality for landlords and could prove permanent in some cases. Whilst nobody likes to accept a weaker position, it is clear many landlords realise it is significantly better than having untenanted properties.

Landlords are amongst creditors who have special rights including the right of distraint. The recent slowdown in the economy and dearth of new tenants has seen more and more landlords turn to distraint to secure rent they are owed while keeping the tenant on lease. Distraint is the common law right to instruct certified bailiffs to enter a tenant’s premises. To remove goods belonging to that tenant to pay for outstanding rent.

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