Retailers will pay out hundreds of millions of pounds in rent on Wednesday, leading to fears that some may be taken under by the burden of this quarter’s upfront payments as trading continues to slow.

Ongoing negotiations between retailers and landlords over the reform of the centuries-old practice of quarterly rents in advance continue to drag on, although the move to monthly rents that some retailers have now agreed could come too late for the more marginal businesses.

Jessops vows to honour paying its quarterly bill

Jessops insisted it would still be able to pay its quarterly rent bill, following speculation that falling sales would leave the camera retailer at the mercy of its landlords, writes Samantha Pearson.

The company has struggled with falling sales in the downturn and is in the process of renegotiating its debt terms after warning earlier this year that it would breach its covenants.

However, in a relatively upbeat trading statement, the company said sales and profit margins had held up in the past couple of months.

Sales fell only 1 per cent in the seven weeks to March 15, reducing the decline for the past 24 weeks to 3.5 per cent.

Sales had fallen as much as 4.1 per cent in the 17 weeks to January 25.

In spite of holding post-Christmas sales, the company also said it had maintained its gross profit margin at 27.3 per cent in the 22 weeks to March 1.

The British Retail Consortium has described Wednesday’s quarterly payments as the toughest faced by retailers in at least 18 years.

Professor Barry Gilbertson, partner in PwC’s distressed property team, said that for some retailers the situation has become so dire that they “may have difficulty in paying their rents on time – or at all”.

Retailers on landlords’ watch lists include JJB Sports, Robert Dyas, Clinton Cards and Blacks Leisure.

JJB Sports is in most difficulty and is considering putting its chain of sportswear shops into a company voluntary arrangement to enable it to avoid insolvency by setting out a revised schedule to pay off debts.

As part of this arrangement it is asking landlords to allow it to pay less rent on its 250 stores, while also using the scheme to rid itself of up to 40 unprofitable leases.

Advisers to landlords said on Tuesday that the biggest danger to the sector would be the administration of JJB, which could leave scores of poorly performing stores empty across the UK’s high streets.

Robert Dyas, the hardware store, also has a handful of problematic leases on which it is trying to negotiate a different rent deal, while it is also trying to move to monthly rents on its 100- store estate.

Clinton Cards said it had no problem paying its quarterly rents and insisted that most of its rents were due on Wednesday and would be paid.

Blacks Leisure has renegotiated its rental payments on some of its leases with non-institutional landlords, moving a couple of dozen of its 400-plus stores to monthly rents.

However, the retailer said it would prefer to see “a collective approach rather than an individual one” on the part of the sector to change rent terms.

Last year, a group of store chains, including Sir Philip Green’s Arcadia Group and Lord Harris’s Carpetright, led calls for reform of quarterly bills, meeting with some of the country’s leading landlords, including Land Securities, PruPIM and Hammerson.

The reaction from landlords has been mixed, although the hardline attitude by several has eased as they have become increasingly nervous about the rising vacancy levels in shopping centre and high street portfolios.

Landlords are now generally willing to talk about granting monthly rents, having been initially combative over existing lease terms.

Malcolm Dalgleish, head of retail for EMEA at CB Richard Ellis, said: “Landlords are desperate not to have empty shops right now as it not only means no rent but also it means they pay rates on that property.”

Guy Grainger, head of retail at Jones Lang LaSalle, said he was aware of more than 100 retailers that have moved to monthly rents. However, some landlords are asking for monthly administrative fees of up to 1 per cent of the rent.

John Richards, chief executive of Hammerson, which owns Leicester’s Highcross shopping centre and the Bullring in Birmingham, said: “Landlords are generally open-minded in discussions with their tenants on matters of affordability and short-term financial pressures.”

On Wednesday, the BRC called on all landlords to show willingness to switch existing leases to monthly terms. It complained that this oppressive rents regime creates major cash flow difficulties for retailers.