Historically, allowing a tenant to pay their rents monthly in advance rather than the more usual quarterly pattern has always been considered a tenant concession. Where landlords have agreed monthly rents they are often documented by way a side letter, providing a personal concession to the tenant.
But are there benefits to the landlord in documenting this concession as a formal variation?
This entry by Ellen James is a follow-up to a recent blog entitled "Monthly rents - how it works and why it matters". Click here to view this entry.
The recent decisions in the cases of Goldacre and Luminar have confirmed the court's view that an administrator is not responsible for payment of any rent which falls due prior to the date of the administration. This applies even though the administrator is using the property for the purposes of administration and has led to an increase in administrators being tactically appointed just after a quarter day so that the rent demand for that quarter pre-dates the administration.
As a result the administrator effectively gets a quarter's rent free period during which it can use the building. Whilst there is a move amongst insolvency practitioners to make an "equitable payment" to a landlord to cover this period there is no requirement to do so.
So, where does this leave monthly rents? Often a tenant's request to pay monthly is the first sign of trouble. It may simply indicate a short term cashflow issue or potentially something more worrying. Either way, by varying the existing lease to provide for the rent to be paid monthly (albeit for a time limited period), the Landlord has reduced the amount of time that the administrator could claim rent free to less than a month. Whilst potentially limiting the Landlord's losses by 2 months this shorter time frame may also result in an earlier clarification of the plans of the administrator or purchaser of the business for the property.
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