With a vacancy rate of 10% at the UK’s flagship Blue Water shopping centre and the collapse of retailers like Kookai, Courts and QS, landlords are starting to think the unthinkable i.e. rent reductions for existing tenants.
Hammersons – a major managing agent for several large shopping centres including West Quay in Southampton and Brent Cross – has indicated that it is willing to “sit down and talk” to tenants that are struggling to survive the retail downturn. Hammerson’s MD John Bywater said “We do not want to say goodbye to good tenants”.
Smith Young – managing agents of Meadowhall shopping centre – has expressed similar sentiments.
Crippling “upward only” rent reviews are blamed by many retailers for exacerbating a severe downturn in consumer sentiment. The rent review system relies on evidence from previous rent reviews and lease renewals to set a precedent against which all new reviews are measured.
But with an “upward only” clause in the lease the best that most retailers can hope for in bad times is that their rent stays the same. In theory it cannot go down although in practise some landlords are prepared to make a ‘personal concession’ for a limited period of time. Too often however the only evidence available during a recession is from months before when the economy may have been in better shape. Consequently rent reviews from the good times on the High Street may be used as evidence for later reviews during the depths of an economic downturn.
This in turn sets a precedent for more rent reviews until businesses simple cease to be able to meet the overheads and cease to trade. Once the retail premises they vacate has stood empty for a few months landlords reduce the rent to attract a tenant but other retailers locked into ‘upward only’ leases cannot capitalise on the new precedent.
See earlier stories in the Knowledgebase about ‘upward only’ rent review clauses.
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