Monday, 20 October 2008

The Winter of Discontent – the battle over monthly rents

10For those retail landlords who are feeling the winds of change as tenants dig in for the months ahead and bargain hard for letting concessions, talk of monthly – or even weekly – rents is not breaking news. Unsettling as the Hermes "revolution" may be, the principle of breaking with the tradition of quarterly advance payments to assist tenant cash flow is nothing new.

The latest debate - echoing calls for the same in the early nineties - relating to monthly rental payments has raged for the best part of a year. Whilst there are arguments for reforming the practice, landlords are faced with not only the threat of voids and devaluation of assets but also the reality of meeting quarterly/contemporaneous repayments to their lenders.

Common examples of other rental concessions being negotiated by tenants are additional break opportunities, extended rent free periods, turnover only deals and demands for landlord capital contributions. All bring with them their own problems as landlords look forward to reviews and ERVs (estimated retail values).

Buckling under the pressure from Sir Philip Green and Lord Harris, some major landlords have just announced that they will allow retailers with less than four stores to pay rents monthly, with no financial penaltyIt now seems certain that a return to the recession of the early nineties is on the cards and that for retail landlords there is still more to come as we head towards Christmas and reports of household name retailers facing administration become daily rather than monthly news.

Many landlords are taking advantage of this period of low activity in the investment market to review their portfolios and the projected ability of their covenants to perform. With Christmas approaching landlords must be just as pragmatic as tenants and start putting in place strategic plans to combat what could quite possibly be, "the coldest winter since records began….".