With footfall declining at an unprecedented level and vacancy rates increasing, what opportunities might a lease afford for landlords and tenants to improve their positions?
Tenants who are feeling the squeeze will need to make sure they maximise every opportunity which their lease might afford them:
- They should keep a clear calendar note of any break rights and, when exercising a break, take great care to ensure that the notice is in the form which the lease prescribes and that any conditions of the break are strictly adhered to. Tenants could consider using an impending tenant's break right to negotiate a rent reduction.
- If a rent review is approaching, tenants should take a surveyor's advice as to whether it is desirable to initiate the review promptly whilst comparables may be low. Tenants and their advisors should scrutinise the wording of the rent review clause, in case there is the possibility of a downward review. And negotiate hard!
- If a retail tenant needs to adapt to survive, perhaps by offering complementary experiences, leisure or hospitality, the lease may be a barrier to making any desired alterations or changes to use. Tenants should engage with landlords and see if the lease terms can be relaxed. In the current climate, most landlords would prefer to relax controls, rather than see a tenant's covenant strength diminish.
- Tenants should also carefully check any other lease expenses, such as service charges, to ensure that they are not paying any more than they are liable for.
The landlord's position is likely to be the inverse of the tenant's:
- If a landlord does not wish a tenant to exercise a break, they should carefully check that the purported exercise of the break right is in full compliance with the lease.
- A landlord should take advice as to the timing of the initiation of any rent review, especially where a downward review is a possibility.
- Landlords should also be prepared to think creatively and allow their tenants to adapt to the demands of today's customer. Facilitating evolution may protect a landlord's position more effectively than exercising strict control over alterations and user.
- Upon lease expiry, landlords should be sure to maximise any entitlement to dilapidations by acting promptly and taking advice.
Footfall fell by 3.3% last month according to the British Retail Consortium (BRC) and Springboard. That was lower than the 6% decline in March, but was still an "unprecedented" 4.8% decline over the two-month period. Diane Wehrle, of Springboard, said: "Not since the depths of recession in 2009 has footfall over March and April declined to such a degree."