When it comes to the British high street, the words of Queen seem rather apt ... ‘another one bites the dust!’
With Debenhams’ recent announcement that it is entering into the process of administration, the store joins a host of other retail giants such as House of Fraser, New Look and Marks and Spencer who have all travelled this same path.
We could point fingers in many a direction; spiralling debt, the growth of online shopping and tight household incomes, to name a few. However many would argue – Sports Direct owner, Mike Ashley, and the chief executive of WHSmith, Stephen Clarke, included – that a key cause of the current high street epidemic is the role of landlords.
Many retailers now occupy stores as tenants (or have previously sold properties through sale and leaseback transactions) and are trapped into long-term leases with upward-only rent reviews. When these same companies start struggling with cash flow problems they are left with limited options when it comes to their premises, with those options more often than not having significant consequences for the retailer.
So what can the tenant (retailer) do?
Commercial tenants cannot usually just walk away from a lease. In most cases they would be required to assign the existing lease and subsequently stand as surety for the remainder of the term for the incoming tenant via an Authorised Guarantee Agreement (AGA), meaning that the burden of any financial and legal liability still remains with the original tenant.
Alternatively we are seeing more and more tenants entering into Company Voluntary Arrangements (CVAs) providing the option for retailers to effectively either break their leases or demand substantially lower rents so as to ease the pressure and relieve the financial distress. This route has been blamed for widening the divide between landlords and tenants, with the Biritish Property Federation commenting that too many companies are abusing the insolvency process of the CVA, leaving landlords with a rather raw deal.
So where next?
Do landlords need to show greater flexibility to retailers by sharing some of the burden in order to save our high street? Is it up to the Government to look at these often onerous lease provisions and start taking action on stringent terms? One such idea might be a temporary ban on rent reviews, similar to a sanction Ireland put in place in 2008.
With the store giants trying to protect their sales and the landlords who went into the high street looking for an investment trying to maintain their rental values, the likely loser in this stalemate is the British high street, a treasure trove of memories and traditions dating back over a hundred years.
If you are a landlord or tenant feeling the effects and pinch of the high street, the commercial property team at Swinburne Maddison can offer you the advice and the legal expertise you need.
Please contact either Charlotte Excell (firstname.lastname@example.org) or Partner and Head of the commercial property team, Victoria Walton (email@example.com) either by email or on 0191 3842441.