Southern Cross to defer rent in bid to slash £230m rental bill

The owner of around 750 care homes, which look after 31,000 residents, will pay nearly a third less rent than it is obliged to for the next four months. The cut - which is effectively a loan from its landlords - will be repaid when it is able to do so.

The company, which is struggling with a £230m annual rental bill, also has until the end of the four-month period to agree a deal with its lending banks.

Southern Cross recently warned it was in a “critical financial condition” as it unveiled a £311m loss in the six months to 31 March.

The care home provider is also facing declining local authority fees as fewer councils placed residents with the company.

Local authority admissions declined by 15 per cent in the first half of its financial year, though there were more NHS referrals and private patients. Councils and the NHS account for 70 per cent of the company’s patients.

Darlington-based Southern consequently saw revenues drop 3 per cent to £464m in the first half, as overall occupancy declined by 3 per cent to just under 87 per cent.

The ongoing negotiations include a potential longer-term rent cut and disposals of some homes.

Some landlords, particularly those which are care home operators themselves such as Four Seasons, could choose to take back some of Southern’s homes.

It has also been reported that up to 200 homes could close with patients moved to other premises.

The rent deferral comes as an investigation by the Financial Times claimed the quality of care in one in seven privately-run homes in England was rated poor or adequate by the government regulator. In contrast, the low ratings applied to one in 11 homes run by non-profit organisations or local authorities.

The Association of Directors of Adult Social Services over the weekend moved to reassure residents and their relatives that it would help Southern Cross get back on its feet.

ADASS President Peter Hay said: “As councils buying care from Southern Cross, we are willing to work with all parties to support the recovery of the business.”