The decision to take on a new property whether it be offices, retail space or industrial is a big one for any business. But in recent times this has only increased due to the continued economic conditions. Most daunting of all the issues to consider is the commitment to pay rent for a set period of time.
Historically commercial rents have always been based upon quarterly payments in advance in March, June, September and December. However with reports from the Centre of Retail Research that by 2018 nearly 20% of all shops will be vacant and with active support from the British Retail Consortium the opportunity to persuade landlords to accept monthly payments seems to be increasing.
So what are the points to consider whether you are taking on a new premises or are already in occupation one but are required to pay rent quarterly?
1. If you don’t ask you’ll never know…
Chances are you are not in the position of Mike Ashley and Republic, and it may sound obvious, but many tenants are often reluctant to broach the subject with landlords whether it be for fear of appearing weak or cash strapped or just because there are no other tenants in the area paying monthly. Give it a go! A landlord may be happy to see that you on top of your business.
2. Don’t expect it all…
Remember that when negotiating terms there may have to be some give and take. If your future landlord is willing to consider a monthly rental payment arrangement it may want something in return and this is likely to come in the form of higher total annual rent to cover the increased administrative costs of the landlord. If you are unsure of your bargaining power consider instructing a surveyor with experience in this area to do it for you.
3. If you find yourselves in a tricky situation…
Most landlords would prefer to have a tenant paying monthly rents than none at all. Recent Court decisions make it clear that administrators of insolvent companies will not be responsible for payments of rent that fall due prior to the date of administration despite continued use of a property. This leaves landlords out of pocket and administrators with up to 3 month rent free. As such landlords are more likely than ever to be willing to consider and alternative arrangement if it will benefit them!
4. Got a break right…?
If you are fortunate enough to have a break clause in your lease but are not keen to exercise it, you could consider using it as a negotiation tactic. A paying tenant, however frequent the payment, is better than no tenant at all. A landlord may well be willing to change the payment terms under the lease if the break clause is removed.
5. Remember it could be personal…
Whatever the circumstances your landlord may only be willing to give you a personal right to pay monthly. This is often referred to as a rent concession and will be documented by way of a side letter or agreement. Therefore, in the event you wish to dispose of your lease in the future either by assignment or underletting, this right will fall away meaning that rent payments will revert to the original quarterly requirement.
6. But don’t take it personally…
Remember that, unfortunately, even the best of landlords may be unable to accept monthly payments because of its own obligations to either a superior landlord or to a mortgagee.
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