R3 Calls On Businesses To Consider Switch From Quarter Days

By Rob Dixon

Calls to change the current rent quarter day system to a monthly process are unsurprising considering both a recent case law and the ongoing turmoil in the economic climate, according to corporate recovery experts.

Insolvency trade body R3 has said a change to a monthly payment system would provide a major boost to retailers on the high street, as it would allow them to manage cashflow in a more effective manner than the quarterly system.

The organisation added that meeting a quarterly payment could prove “one burden too many” for those trying to remain competitive with online retailers.

Doug Robertson, a Partner and specialist in corporate recovery at Irwin Mitchell, said such views had become increasingly common in recent years, notably following a major ruling in the case of Goldacre (offices) Limited –v- Nortel Networks UK Limited.

The case related to a landlord who applied to court for a declaration that administrators did not have the right to apportion the amount of rent they paid as an expense, after they sought only to pay rent for the period during which they were appointed and used the property for the purposes of the administration.

He explained: “They ended their use of the property partway through a payment quarter, so wanted to only pay rent for the period in which the company occupied for the benefit of the administration.  The landlord applied for an order that there was no power to apportion rent contained in the lease and the whole quarter was payable, a claim that the court agreed with.

“What this means is if administrators cause a company to occupy a property on a day in which rent is payable in advance, then the administrators must pay that period’s rent in full – even if the company vacates just 24 hours later.

“The flipside is that if administrators are not appointed on the rent payment day they do not have to pay rent for the rest of that quarter, even if they are appointed a day later.”

Doug added that this issue, which emerged ironically after an application from a landlord, has caused a major headache for those letting property.

He explained: “The net result is the high street has been badly affected by appointments made just after the quarter day, leaving landlords out of pocket. It is clear to many that the best way to tackle this would be to change the peculiarly English convention of quarterly in advance payments of rent to payments monthly in advance.

“This would not only limit the maximum period that administrators can occupy without paying rent to a single month, but also mean landlords would be exposed to less risk in terms of expecting payments and retailers are able to keep a good handle on their cashflow.”

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