RETAILERS facing huge rent payments for their properties must adapt their businesses “to stay in the game”.
That was the message from Chris Wood, Yorkshire committee member for insolvency trade body R3 and partner at Cleckheaton-based Clough Corporate Solutions.
Store bosses face a hefty bill with the latest deadline for quarterly rent payments, where three months’ rent is paid in advance for commercial properties.
It comes at a time when insolvency on British high streets has already seen more than 21,000 jobs lost since the start of last year – due to difficult economic conditions and the rise of internet sales.
Research by R3 suggests that 26% of retail businesses are currently in the “caution” or “high risk” band, in terms of likelihood of company failure in the coming 12 months.
Mr Wood said: “Quarter day will always present a challenge to struggling retailers. Some of their leases were agreed during the good times and will have many years to run at very high rents.
“Negotiating with landlords is key to staving off insolvency, although of course directors must take care to avoid wrongful trading with regard to all of their creditors.
“More businesses are attempting to pay rent on a monthly basis or even negotiating turnover linked rents to help them manage their cash flow more effectively. This is more likely to apply to newer leases, however.”
Said Mr Wood: “The internet is cannibalising ‘bricks and mortar’ retail.
“Retailers need to adapt their business to stay in the game as we have seen a 12% drop in footfall on the high street in the year to April – but this is doubly challenging when faced with too many underperforming stores held on long and inflexible leases.
“We are also calling for greater clarity surrounding the issue of rent due in the event of an insolvency and whether it counts as an expense of the administration and over what period.
“Currently, advance payment for a quarter’s rent is required despite actual usage – an administrator might only be using the premises for a short period of time, but be liable for a full quarter’s rent.
“Until recently the law allowed an administrator to pay on a daily usage basis for premise occupancy, this was changed by the ruling in the Goldacre case.
“The net effect of this rule means it is often harder to trade a business during an administration.
“More businesses that are failing could be saved if the Government codifies what constitutes an administration expense, therefore alleviating any uncertainty.
“This current situation is clearly not ideal during the current difficult economic conditions as a business sold as a going concern by an administrator will almost invariably recover more for creditors and save more jobs.”