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 commercial rents must be paid three months in advance, a practice some consider archaic.

Changing 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, and some have been lobbying for the Government to change the system.

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. Most retail tenants are still faced with the old practice of quarterly rental payments upfront. Nearly 90% of respondents allowed to move to monthly terms, said they had been or would be penalised with higher charges.

Helpful during recession

The transfer to monthly rent helped keep many businesses afloat during the recession. Between 2009 and 2010, tenants particularly in the leisure and retail sectors, requested assistance from landlords to ease the financial burden caused by the downturn.

Tenants were specifically seeking straightforward rental concessions. These include deferred payment, commercial rents reductions, or moving to monthly payments to ease cash flow. The flexibility shown by landlords and the success of tenants in negotiating such terms, could see a return to quarterly rental payments postponed during a gradual recovery, or in some cases, indefinitely.

Landlords’ perspective

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

Landlords are among the creditors who have special rights, including the right of distraint. Distraint is the common law right to instruct certified bailiffs to enter a tenant’s premises, removing goods belonging to that tenant to pay for outstanding rent.

The slowdown in the economy and shortage of new tenants has seen more and more landlords turn to distraint to secure rent they are owed, while keeping the tenant on their current lease.