Insolvency trade body R3 is predicting more retailers are likely to face financial problems following the passing of the latest deadline for quarterly rent payments at the start of the week.
High street video games retailer Game, which is facing a rent bill of £21 million, appointed administrators from accountancy firm PwC on Monday, but Game is unlikely to be the only company facing a rent headache, says R3.
The organisation says businesses in the retail sector are more likely than any other to be concerned about their debt levels and believes there are many that are unable to fund expansion.
Gareth Self, a member of R3’s Yorkshire committee and an insolvency practitioner within the P&A Group, in Sheffield, said: “Negotiating with your landlords is key to staving off administration, and in addition we would be happy to see more businesses paying rent on a monthly or ‘pay as you go’ basis so retail businesses are able to plan their cash flow more effectively.
“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 administration.”
Mr Self says that a legal ruling in 2010 has opened the way for landlords to demand full payment of the rent when only a small part of their premises are used during the short period of an administration.
“The net effect means it is harder to trade a business during an administration,” said Mr Self.
“A recent survey of R3’s members found that on average, nearly a third of potential trading administrations are now pre-packed or liquidated because of uncertainty surrounding the expenses regime. This is clearly not ideal during the current difficult economic conditions.”
Mr Self’s warning comes only days after leading property consultancy BNP Paribas Real Estate ranked the city as the sixth most at risk of retail collapse or closure in a new study of the UK’s top 100 retail locations.
The BNP Paribas Real Estate report itself followed a more upbeat assessment by Sheffield City Council, which said the city was bucking the national trend by increasing the number of city centre shoppers by 0.5 per cent, while other major cities had recorded a 1.1 per cent fall.