Pictured above: Michael Bennett
This month's quarterly rent payment date has again given rise to
more predictions of retailers going to the wall. A property
insolvency expert, while agreeing that this would not be
surprising, believes that there are a number of creative and
pragmatic solutions that landlords and tenants may want to
consider.
Michael Bennett, a solicitor in the Corporate Recovery practice
at the Midlands' offices of law firm Irwin Mitchell, says: "The
wider economic environment is showing signs of improvement but,
sadly, underlying sales in some retail sectors appear somewhat
fragile and are likely to remain so in the short term.
"Quarter Day tends to focus the mind of landlords, some of whom
may well face hard choices. Should a tenant be unable to make the
payment, a landlord is entitled to forfeit the lease. We all know
that occupier demand is not dead, but it is certainly opportunistic
and selective. Unless the unit is in a particularly desirable
location, the landlord may find it difficult to then swiftly find a
replacement tenant and end up saddled with a vacant unit and a
business rates' liability."
Michael believes that landlords who adopt a pragmatic approach
to a tenant's inability to pay rent could avoid this position. "Any
landlord who believes he faces this prospect should enter into
discussions promptly with the tenant, via the managing agent, to
gain an understanding of the tenant's financial position," he
advises.
"An obvious step would be for the managing agents to obtain the
tenant's monthly management accounts and cashflow forecasts. This
would clearly be a two way process and therefore require the
cooperation of the tenant, who is likely to be keen to arrive at a
solution that allows for continued trading."
Michael is of the opinion that a number of options present
themselves to both parties, including:
• A change to the terms of the lease so that a lower rental
obligation falls on the tenant in the short term, with the rent
increasing in pre-determined stages as and when trading
improves
• Linking rent to turnover or seasonal adjustments, such as
a larger end of year quarter rent
• Balloon rental payments where the tenant's cashflow is
heavily dependant upon seasonal trade
"Although many institutional landlords may be reluctant to
embrace such flexibility and creativity, an inflexible approach
could prove detrimental to the long term value of a portfolio,"
concludes Michael. "The fact is that the nature of some sectors of
the industry has permanently changed and landlords ought to
recognise this and change their approach accordingly."