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Landlords advised to prepare for action if retailers fail to pay rent- 15/09/2011
With the next date looming large for retailers to make their quarterly rent payments, 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 Shropshire law firm FBC Manby Bowdler LLP, says that on Thursday 29 September 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 29 September. 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, who is based in FBC Manby Bowdler’s Telford office.
In the last six months a number of household name retailers have gone into administration, including TJ Hughes, Focus DIY, Oddbins, Jane Norman and Lombok. But according to Mrs O’Brien-Quinn this is just the tip of the iceberg.
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.
“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.”
However, distress has been criticised as being a draconian remedy and from April 2012 it is likely to be replaced by the new procedure of Commercial Rent Arrears Recovery which will be controlled by the courts.
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.”