Blog: Monthly versus quarterly rents. What's the solution? By James Norton, 6th March 2013

The recent string of high street administrations paints a grim picture, with household names such as HMV, Jessops, Blockbusters, Republic and now Dreams all in difficulty. Understandably, this is causing landlords and tenants more than a few restless nights. Landlords want to protect their investments and do not want empty properties, while struggling tenants want favourable lease terms. 

Rents in a standard commercial lease are paid on a quarterly basis. This dates from medieval times when the King would appoint his servants (to collect taxes and rates) on the Christian holy days. Thus the practice is, well, medieval. Many tenants assert that this should change and that they should be allowed to pay rents on a monthly (as opposed to quarterly) basis. The advantages of such a move are:

• It would assist struggling tenants with their cashflow. Tenants would be able to manage their cashflow more effectively if they did not have to pay rent three months in advance
• If the tenant’s business is placed into administration, immediately after the quarterly day (as has been the trend recently to the chagrin of many landlords), the landlord would only have to wait a month instead of three for his rent
• Commercial leases are the only arrangements requiring payments three months in advance. Tenants should be treated the same as any other customer.
• Some of the big institutional landlords (Crown Estate, Lend Lease etc) have made the switch to monthly rent payments.
• Monthly rents would remove the landlord’s insecurity that the tenant will have to leave the premises (because they are struggling with the rent). This is important in light of the fact that the new Commercial Rent Arrears Recovery regime (CRAR) is not set to be introduced until this summer at the earliest.

However, landlords may argue the following:

• While landlord’s have an investment in the property, they are not the only investors. Other stakeholders could include pension funds or lenders. Lenders may not (as a condition of their mortgage offers) accept a switch to monthly rents.
• The practice of quarterly rents has existed and worked for centuries. What effect would monthly rents have? A business rates freeze or cut could be of greater assistance to tenants.
• If landlords have to start making extra bank payments each month, this could feed through into the service charge and cost the tenant more as a result.
• Big institutional landlords will be able to afford such a move - however, the opposite may be true for smaller commercial landlords.

The argument for monthly rents looks, at first sight, to be in favour of the tenant. However, the case is anything but clear and the dark cloud hanging over our high street is unlikely to give way to sunshine any time soon. Although some big landlords have already moved to monthly rents, it is likely that the debate surrounding monthly and quarterly rents, will get louder in the upcoming months (when new economic data is released and the budget takes place). 

About the author

James Norton is a paralegal at a top 100 firm and an aspiring lawyer with a passion for commercial property law. He writes a regular blog on the latest legal (and other) developments in commercial property law at: http://proplawyer.blogspot.co.uk/