Recent court decisions that have found in favour of landlords seeking rent arrears should not be seen as the only way forward in terms of repairing retail property revenue flows.
It’s certainly too early for landlords to be celebrating unreservedly: in the instance of the most high-profile decision – which saw Westfield make a claim against The Fragrance Shop – there is a possibility that the High Court decision could be appealed.
It would be worrying if landlords saw the courts as the only remedy as it would be against their best interests. While the recent case decisions may have many landlords calling their lawyers, it needs to be remembered that making court claims for non-payment of rent is going to be a hazardous and protracted process. On a practical level, the courts are likely to be jammed with cases for many months and even then, there’s no certainty of getting a result.
Yes, there will be instances where there has been an irretrievable breakdown between the landlord and the occupier and it will be ‘see you in court’. But from a wider perspective, landlords need to be looking at their overall strategy to mend the financial damage caused by the pandemic and the exacerbation of the problems that were already facing the retail sector.
Base and turnover leases can help, but only if you can do the affordability modelling which gives you a feel for what different types of occupier can turnover in any given unit and location. You want rents to be sustainable for the occupier and in line with what their revenues are: this protects both positions. In this context, we created an affordability model for restaurants pre-Covid which we have developed further across various F&B sub-sectors and leisure uses.
Sharing risks and rewards greatly enhances the occupier and landlord relationship and brings more coherence to asset strategy. Winning in court may be a ‘jam today’ remedy for landlords, but it doesn’t address the longer-term issue of creating sustainable rental income.
Dan Taylor, Head of Lease Advisory was featured in Property Week talking about the challenges of lease resolutions.