U.K. Retailers Demand Change in Rent Terms

By Bernice Hurst, Managing Partner, Fine Food Network

One aspect of the credit crunch retailers in the U.K. have joined together to tackle is cash flow. Shop leases in England, which usually command quarterly payment in advance, are being contested by some of the country’s biggest hitters.

According to The Sunday Times, sixteen top retailers including Boots, Next, Argos, Arcadia, BHS, New Look, Carpetright, Carphone Warehouse, DSG and Debenhams have decided to tackle landlords and issue their own demand to pay monthly. With a combined annual rent reportedly in the region of £2 billion ($4bn), the retailers believe they are in a strong bargaining position. Together the retailers occupy property worth about £40 billion ($80bn), according to the newspaper.

Many of their landlords, which include a number of large pension funds, want to stand their ground. They are expected to resist strongly, reminding tenants of the terms to which they have legally agreed. One property company chief executive warned: “The idea that we will roll over and let our tummies be tickled is way off target.”

Others, however, don’t entirely disagree and understand that “owners 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 tenants need help. At out-of-town retail parks it is not unusual for retailers to pay rent monthly. These negotiations are kept under wraps to avoid setting precedents.

Although brought to a head by the current economic situation, one of the retailers involved said, “This has been coming for a long time.” And although property analysts point out that the relationships between landlords and tenants have traditionally been adversarial, the ways in which shoppers now shop has to be taken into account. Out-of-town retail parks and shopping centers have been hard hit by consumers worried about the cost of gas while they, and high street stores, have also noticed online sales increasing. This can be seen as reason for the two sides to get over the past and start working together.

Discussion questions: How would you describe overall relations between retail tenants and their landlords? Do you think retail landlords are open enough to lease re-negotiations during difficult times? What do you think of retailers banding together over lease agreements?
[Author’s Commentary] The British Property Federation, which represents the UK property industry, issued a statement this week saying that its members will endeavor to work with their tenants to find solutions to any financial problems they may face as a result of rental payments.

• High-street’s big retail guns revolt over rent – The Times