Mike Ashley’s Frasers presses landlords for monthly rent switch

Sports Direct owner Frasers Group has piled the pressure on its landlords after telling owners it has “decided” to switch to a monthly rent payment cycle across its bricks-and-mortar store portfolio. In a letter sent to landlords last month, seen by EG, the group said it will change the frequency of its payments to monthly from quarterly following “discussions within the business and also having looked closely at the market trend and the new ‘norm’”. “We hope that national lockdowns are now in the past, however, the future still remains extremely uncertain,” the group said in the letter, adding that the shift to monthly payments will help with “streamlining” payments and minimise “room for any errors or defaults”. Frasers also flagged there “may be a slight delay” in paying its rent while it makes the “necessary changes” to proceed with monthly bills, but that it has paid for a third of the December quarter in the meantime “so that payment of the month rent is not overdue”. Separate invoices were requested for service charges, which would remain quarterly. The company said the changes do not represent a formal variation to the lease. Outside of its portfolio – which includes Flannels, USC and House of Fraser – all other terms remain in force for future tenants. “This concession is personal to us and does not bind our successors,” the group said in the letter. Frasers previously approached landlords with a request to shift future rents onto monthly payment cycles in 2020, as revealed by EG. At the time it also made an assertion to withhold rents indefinitely until trading recovered. In its latest update to the market in December, Frasers posted a 23.6% increase in group revenues and said its “performance continues to be strong in both our store estate and online”. It expected to report pre-tax profits of between £300m and £350m for the period ending 4 April 2022. ‘Predictable’ pain Industry leaders have condemned the move to impose terms on landlords, especially since many have discussed and agreed monthly payments with tenants on a short-term concessionary basis to help boost their liquidity during the pandemic. Andrew Jones, chief executive of LondonMetric, told EG: “It never ceases to amaze me how some people, on one hand, want to talk about partnerships and working together, while on the other feel that it’s within their gift to unilaterally amend a contract for their sole benefit. You couldn’t make it up.” Some landlords and operators appear to be resigned to this type of behaviour from occupiers. The consensus is that occupiers often get away with the tactic, with many owners deciding they would rather not spend extra time or money on challenging their actions. One boss at a retail investment firm, who did not wish to be named, said it is “the sort of thing landlords are just accepting these days”, adding that it has become a “predictable” grievance. “Many retailers do this,” added the source. Contesting tenant behaviour Alison Hardy, partner at law firm Ashurst, said that if tenants choose to press on with monthly payments without consent from owners, landlords can pursue a claim for the full quarter’s rent as well as a declaration that the tenant must pay rent on a quarterly basis. “Frasers are not the first, and won’t be the last tenant to deploy this tactic,” she said. “Most commercial leases won’t allow tenants to unilaterally dictate the frequency with which they pay their rent. Well-advised landlords should consider whether they wish to agree to this proposal, and if so, whether they want anything in return for granting Frasers this flexibility and/or whether they want to negotiate the terms, for example by limiting the duration of this concession.” The news comes as fresh legislation is set to take effect on 25 March in England and Wales, enforcing an arbitration process for dealing with rent arrears accrued during the pandemic. Restrictions on forfeiture and commercial rent arrears recovery are due to be lifted. To send feedback, e-mail pui-guan.man@eg.co.uk or tweet @PuiGuanM or @EGPropertyNews Image courtesy of Savills