The financial position of Southern Cross is critical and it cannot afford to meet its present rent obligations, the care home group said this morning.

The Darlington firm's interim results, released this morning, laid bare the full scale of the challenges it is facing.

The firm, which leases the majority of its 750 care homes, has struggled as the rents it pays to landlords have risen at a faster rate than the fees it receives for residents' care.

It has been attempting to renegotiate rents, agreed before the recession, with its landlords since September.

Government cuts have already seen a 15 per cent drop in local authority admissions, the majority of its work, to Southern Cross homes, with the company paying 22p of every pound it makes on rent.

In the statement released this morning chairman Christopher Fisher said: "Southern Cross is a low margin business and the progressive squeeze on its revenues over the last 12 months, while facing many upward pressures on its costs, means Southern Cross is now in a critical financial position and cannot afford to meet its future rent obligations in full."

However Mr Fisher believed there were reasonable grounds to be optimistic that the negotiations with landlords would be successful.

Southern Cross employs more than 200 people at its base in Archer Street, Darlington, and 6,000 in 100 North-East homes.