Retail jobs are being placed at risk because of the current rules on the payment of rent in administrations, according to the insolvency trade body R3.
The organisation is calling for a change in the law to give hard-pressed retailers a better chance of survival. Fashion chains Internacionale and Ark, and toy retailer ModelZone, are amongst the latest retail failures. All three have announced their intention to appoint administrators following Monday’s rent quarter day, when the next three months’ rent fell due.
Jeremy Oddie, who is North West chair of R3 and also head of recoveries at accountants Mitchell Charlesworth, said the current rules were a bad deal for both retailers and landlords.
“Retail administrations spike after every rent quarter day, which is hardly surprising given the current law on administration expenses,” he said.“Currently if rent falls due when a company is in administration, it qualifies as an administration expense, which means it must be paid in full before any other creditors’ claims.
“Therefore administrations are often delayed until the quarter day has passed. What’s more, if the business continues to use the property during the administration, even just for a short time, full rent may still be payable.
“The rules on administration expenses have developed haphazardly over time and lost sight of a reasonable ‘pay for what you use’ principle. As expenses have risen higher and higher, often it’s more practical to liquidate the business or carry out a pre-pack administration where otherwise it might have continued trading while in administration.
“The current rules put jobs at risk and reduce returns to creditors – including landlords.”