The Retailer Spring_09.05_FA
How to make property work for you in the current retail market
STEPHANIE KIERANS PARTNER, COMMERCIAL PROPERTY Sherrards Solicitors
RETAIL IS DYNAMIC AND FAST PACED BUT THE CURRENT ECONOMIC CLIMATE IS PILING ON THE PRESSURE AND DEMANDING UNPRECEDENTED LEVELS OF CHANGE. THE SHERRARDS RETAIL TEAM ARE CONSTANTLY LOOKING FOR WAYS TO HELP RETAILERS GET THE MOST OUT OF THEIR ASSETS. WHEN IT COMES TO MAKING YOUR PROPERTY ‘WORK’ FOR YOUR BUSINESS, IT’S WORTH REVISITING LEASES AND RENTS AND LOOKING AT NEW APPROACHES SUCH AS POP UPS AND CONCEPT SHOPS. Q. What are my options if my business is underperforming and I am struggling to meet quarterly rent payments? A. Talk to your landlord – they May be flexible preferring to keep tenants in premises rather than dealing with voids and the costly problems of remarketing. Leases can be varied and terms revisited. Q. What can I do if I am paying over the market rate? A. With fluctuations in the value of commercial real estate, tenants, particularly those with longer leases, can find themselves paying rent higher than the current market rate. This in itself is not a reason to bring your lease to an end. There are however options open to you. Q. What are the different options I can discuss with my landlord? A. If you feel you are paying over market rate, you may be able to agree a rent reduction in exchange for a longer term or the removal of a break clause. For increased certainty you could try to agree to stepped increases in your rent rather than a market rent review. If you want to stay in your premises but need to improve them, you could agree a longer lease term in exchange for an incentive from the landlord to refurbish the premises. Q. Is there another way I can reduce my rent? A. Even if there is no formal contractual ability to break the lease, you may be able to fall back on a rent review provision to bring the rent in line with market rate. Clauses that allow rent to be reviewed either upwards or downwards depending on how the market rate currently compares with the rent being paid, are relatively uncommon. However, if you are fortunate enough to have one then it will help bring your rent back into line with the current market rate, at the review date.
Q. Can I bring my lease to an end early? Is there a break clause? A. A break clause is a contractual mechanism which allows a tenant to end a lease early. Look carefully at your contract to see whether your lease contains a break option. If it does, diarise carefully the date for serving notice to take advantage of this. You will need to check whether there are any pre-conditions that need to be satisfied to allow you to use the break option. Courts take a notoriously stringent line on this and many a tenant has been caught out by a seemingly innocuous or trivial error in the process. Q. How else can I bring my lease to an end? A. If you are not able to rely on a break clause, there are other options including trying to agree a surrender of the lease. The commercial landscape at the time will affect whether this is achievable. It may be that the landlord has others interested in the premises and would prefer to re-let to a new tenant with a stronger covenant. Q. What are the legal issues when making changes to the lease? A. Any changes to a lease will need to be documented by a deed of variation and if you extend the term this will take effect as a new lease. Take into consideration the cost of this (stamp duty land tax and land registry fees, for example) and make sure you are properly advised. If the landlord is not willing to formally vary the lease, they may agree a payment holiday or monthly instead of quarterly payments to help with cash flow. This sort of arrangement can be documented in a less formal side letter which is likely to be personal to you and not available to the next tenant if you sell the premises. A. Pop up shops can be a great way for new retailers to test the water in the market place and for established companies to try out a new location. From a retailer’s perspective, there are many benefits including the relatively low cost associated with securing and opening pop up shops. By their very nature, they are almost tailor made for the sale of seasonal products, such as Halloween and Christmas gifts. They also generate awareness of your brand as they are usually located in high footfall areas. From a landlord’s perspective, short term leases can fill voids and encourage growth. In what is a tricky time for retail generally, offering short term leases can avoid empty units in shopping centres or on high streets. Q. How can I test the market before taking on a long lease?
16 | spring 2019 | the retailer
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