Jeffrey Goodman, of Amy’s Housewares in London, discusses the future of retail property in the UK and asks whether it’s prime time for a revolution!
It will come! It has been coming for some time. But there has been no trigger point, as has now happened with Covid in 2020.
It might start this year. It might not until next year or even a few years time. But it will come!
Landlords and lessees, freeholders, tenants, long leaseholders and all other classifications affecting the owning and usage of property are going to have to be rethought, modernised or made fit for purpose.
No more ‘upwards only’ rent reviews, no more long term leases or different conditions for guarantees. Generally much more flexibility - in fact a new commercial landscape.
There has already been a move from 20-year shop leases to nearer 10 - but there has to be further change. It needed 2020’s Covid pandemic, but when it’s finally over, hopefully some time in 2021 and leases come up for renewal, there is bound to be some new thinking.
I am a retailer, a lessee, and might be expected to be appropriately biased.
But I am not. I understand the landlords’ situation just as well. But landlords enter into property purchases with their eyes open just as retailers take leases on shops. But it has always been the landlords who are protected in every way and the retailers who take the risks.
For the first time in 2020, landlords have suffered grievously, as have some retailers at the expense of going broke have not been penalised as heavily as they would have been previously.
Landlords are controlled by the banks and the lenders from whom they have borrowed, also by committees and boards of the companies involved, solicitors and letting agents.
’Mr John Retailer’ who wishes to take the lease on a shop negotiates primarily a rent, possibly a length of lease. But the lease most usually demands a guarantee which is in force for the length of the lease regardless of what happens to the business, everything from a recession to a pandemic. The landlord sits pretty for many years whilst the retailer takes all sorts of chances and is continually at the sharp end.
If he approaches his landlord for some relaxation to the terms of the lease, even if the landlord is sympathetic, the lenders start applying their various ratios for their own security and invariably answer that it is not possible to change anything. And that is just the financial side! Should the lessee request anything else, such as a change of user, possibly to assist with the maintenance of the business, all sorts of other obstacles are encountered.
Well, I believe it is all coming to an end. I can see that shop owners when renewing their leases in the coming years or new lessees are going to demand break clauses. Rent reviews are going to be much better defined with the possibility of downward situations where circumstances are appropriate.
Guarantees given willy nilly are going to have to have stringent terms attached thereto, not the blank ’we win’ ’you lose’.
There may well be more rentals based on sales turnover - in fact that might be one of the major changes to be expected in the coming years.
I have a certain sympathy with landlords who have to protect their investments, but it has been very one-sided and it cannot continue.
In my experience, I have had landlords who have effectively broken the terms of a lease and there is very little the lessee can do about it without incurring horrific legal expenses. But if a lessee breaks the terms, landlords can enforce terms much more easily.
When leases are negotiated, the landlord is in a very strong position because the proposed lessee has only one weapon, which is to withdraw. So the lessee has to take the chance, albeit the landlord might have to wait longer for a let.
There has to be a fairer solution as I have itemised, but there will have to be the changes that I believe are to come.
These are break clauses, variable guarantees, predetermined rights of change to assist businesses when circumstances have altered and revised rent review procedures.
As it happens, landlords are not likely to suffer overly from these easements, but there will be some weakness in their security. I am pretty sure that many small businesses that have gone into administration or liquidation in 2020 would have had a fighting chance for both themselves and their landlords had some of these easements been in operation.