Sunday 16 June 2019

Bond Proposal Receives Strong Criticism

This week’s TRC Meeting included a proposal from management to discuss a bond for all (?) traders equivalent to 3 months rent, and the move has been strongly criticised.

The detail of the proposal is not yet available, but let us look at the concept, and maybe save further time and effort because the initial reaction from traders is that it is unreasonable and inappropriate.

Bonds traditionally are designed to protect landlords from losses occasioned by property damage and rent arrears when a tenant leaves a lease. Operators of open stands are being included in this discussion at QVM even though their tenancies generally don’t involve structures or equipment. It is difficult to damage an asphalt  floor. So presumably this is just about rent.

And it is easy to understand why we have a rent issue. When rent was paid weekly in cash there was a sort of a built in credit control system. Cashed up traders would go to the office each week and pay their rent as part of their normal market routine -  job done. Now, you don’t have to pay rent weekly and you can build up arrears (unless of course you pay by direct debit). QVM has quite rightly joined the modern cashless society but there is now a problem with too many traders in arrears.

To most traders the logical answer is to tighten up on credit control. Traders should not be allowed to get in to arrears. This rent bond is an alternative solution - make traders pay upfront in case they fall into arrears. The problem is that solution shifting from credit control to bond funding is an unfair impost on the majority of traders, and certainly unfair for those who manage their funds carefully and pay on time.

Traders want to see every one of their colleagues prosper. We know we are in tough times and we need to make special efforts to assist during the transition to better times. But creating financial difficulties for the bulk of traders because some are not meeting their commitments is not a sensible or desirable course.

Three months rent can involve significant amounts of money particularly for multiple stall holders. And, given that we are in a declared retail recession (recent NAB report), this is not the time to be parking valuable funds in a non-productive (apart from minimal interest) bank account. Traders have much better things to do with their money, and many require absolute cashflow flexibility to maximise their business efficiency. We actually have reports of new String Bean Alley tenants taking out business loans just to finance their bond obligation. Yes, that is crazy.

And please don’t argue that bonds are simply part of retailing. Bonds (certainly high ones) became popular in the excesses of the past when rents, and lease conditions were enthusiastically developed by shopping centre landlords during a time of comparative retail wealth. Those conditions definitely don’t apply today.

QVM has a rent problem. It is not just their problem. We all have a responsibility here. It is simply a matter of finding the right solution -  one that brings rent payments back in to line, and doesn’t unfairly disadvantage traders who are doing their best to manage difficult cashflow conditions.

By Greg Smith