It could be a worrying Christmas for landlords of retail units as 25 December is next date for retailers to make their quarterly rent payments. With the Comet administration proving just how fragile the retail sector is, a leading property litigation lawyer is advising landlords to be prepared to take swift action to recover any outstanding rent or to take possession of their property, before their tenants go into administration.
Helen O’Brien Quinn, a property litigation solicitor with West Midlands law firm FBC Manby Bowdler LLP, says that on Christmas Day retailers across the country will have to hand over millions of pounds in rent to landlords and some will fail to deliver.
“Most retailers pay rent quarterly in advance on the so-called Quarter Days, the next of which is 25 December. Finding so much money in a lump sum puts an enormous strain on their cash flow, particularly in the present economic climate, and can be a trigger for retailers to fail,” explains Mrs O’Brien-Quinn.
In the last six months a number of household name retailers have followed Comet into administration, including JJB Sports, United Carpets and Mostyn’s. Industry figures to the end of September 2012, show that 47 retail companies have failed, affecting 3,673 stores and 44,402 employees.
But according to Mrs O’Brien-Quinn this is not the whole picture. She says: “Failure of large chains of stores makes the news, but not the closing of smaller chains and independent stores. However, those failing to pay the rent also leave landlords in the lurch. Even if a store does not close, falling into rent arrears is a sure sign that the business is struggling.
“We are advising our landlord clients to prepare for the forthcoming Quarter Day and decide on any action they wish to take if the rent is not paid. Christmas is traditionally the busiest trading period for most stores, so if they cannot pay the rent then, the writing is on the wall, with January and February the most common months for retail administrations.
“Landlords have to make a commercial decision as to whether to take action, either solely for the recovery of rent, if there is no likelihood of a replacement tenant and they believe trading conditions for their tenant will improve, or to bring the lease to an end.”
Landlords should take legal advice on a number of different courses of action, advises Mrs O’Brien Quinn.
In order to recover rent the ancient common law remedy of distress is still available to landlords. This allows the landlord to seize and sell the tenant’s goods to a value equivalent to the outstanding rent arrears. This is quick and cost effective and does not require permission from a court.
Mrs O’Brien Quinn says: “Often the threat of removing goods may prompt a tenant into paying the outstanding arrears immediately or putting forward reasonable proposals.”
If a landlord wants to recover possession of its premises, then it can forfeit the lease by exercising a right under the terms of the lease to terminate, if there is some default by the tenant.
Mrs O’Brien Quinn says: “Defaults often include non-payment of rent, breach of any condition or covenant in the lease or the insolvency of the tenant or guarantor. However, there are a number of procedural restrictions to forfeiture and tenants can also appeal to the courts to have this refused.
“With the Quarter Day looming, what ever course of action landlords decide to take, it is better than not acting and losing out on future income.”