The country's biggest retailers are uniting to demand a radical change to the way in which they pay their rents moving from quarterly in advance to monthly. Paying three months rent in advance has a significant effect on cash flow for retailers and the change will challenge one of the most contentious tenets of the property industry.
A group of about 15 of the largest retailers including Boots, Next, Argos, Arcadia, BHS, New Look, Carpetright, Carphone Warehouse, DSG and Debenhams are collaborating and they are collectively paying a total of over £2 billion a year in rent and occupy property worth about £40 billion.
The move will be strongly resisted by landlords, who include pension funds such as Prudential and Legal & General as well as large property companies like British Land, Land Securities, Hammerson and Liberty International.
The leases for the high street stores in question are legally-binding and they will almost certainly specifically include a clause stipulating rental payment must be three months in advance.
But increasing numbes of retailers believe that landlords must become more flexible and accept that changes must be made in an industry largely unaltered for decades.
Some landlords have already conceded that a number of their retailers need help (see earlier story) and at out-of-town shopping malls it is not unusual for retailers to pay rent monthly but the fact is not advertised by either landlord or tenant to avoid setting a precedent.
Other retailers that are hovering at the edges of the alliance are Homebase, MFI, Peacocks, River Island, HMV, Mosaic (which owns Jane Norman, Principles, Oasis and Warehouse), Dunelm Mill and Topps Tiles.
ECONOMIC PARTNERSHIP COMMENT
This isn't the first time that this issue has been aired and the British Retail Consortium started a campaign in 2006 (see earlier story). However, if the campaign gathers steam it could also see a review of the way that evidence is gathered for rent reviews. Many landlords simply pick a figure out of the air but the rules demand that they support any claim for a rent increase with evidence from a similar property in the same street (or nearby) where a landlord and tenant have settled a rent review or started a new lease in the recent past.
The problem with this system is that evidence can often be six to twelve months out of date but in the absence of any more recent lettings a precedent is still set. This means that retailers could be settling rents at the start of a recession on evidence from boom times a year earlier.
To save money many small retailers do not get professional representation at a rent review and agree rents that are way in excess of the going rate thus setting a new precedent that can lead to a vicious spiral. Retailers should always get professional representation from a qualified commercial surveyor. For a modest fee it could save thousands of pounds in rental payments.
Read related items on:
Retail, pubs, clubs and restaurants