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Retail tenants should check the small print

As a fresh wave of lockdown measures are announced across the UK, retail tenants may be experiencing new concerns about how to pay the rent. However, another ticking timebomb may be the viability of their landlords.

Even before the pandemic, the high street was undergoing radical change and the continuing restrictions have seen a dramatic shift in consumer habits towards online shopping.

Faced with such a shift towards e-commerce, few were surprised to see the recent issues being experienced by Intu, a large retail landlord with shopping centres that include the Trafford Centre in Manchester. For the tenants of Intu-owned shopping centres, and also other retail landlords which may be facing future uncertainty, their primary concern is likely to have shifted from their own store footfall to concerns over whether the outer doors will stay open.

“Much of the recent commentary has been focussed upon whether retail tenants will be able to pay their rent during the pandemic, but of equal concern is the viability of their landlord. Tenants should be scrutinising the small print in their lease to check where they stand if the worst happens,” explained commercial property law expert and Partner at Eaton Smith, James Burgess.

“The lease may not detail what will happen in the scenario of a large shopping centre being closed, for example, but while such situations may not have been foreseen, that does not mean that tenants cannot argue the landlord has failed in their obligations in such circumstances and it is worth getting advice at an early stage.”

Where Administrators, or other third parties, have taken over the running of sites, which is a possible outcome in the instance of large retail shopping centres, tenants may still be adversely affected if there is a change in operational measures, such as cleaning or security services, or if marketing activity is reduced.

“Again, if services are specifically set out in the lease, then a tenant may be able to argue for a reduction in what they pay, particularly if it makes the premises less feasible or fit for purpose,” added James. “Unlike the closure under lockdown, which was imposed by the Government, these are factors which fall within the control of the landlord.”

As part of the safety net to survive the pandemic, the Government has introduced legislation to protect commercial tenants, with landlords and lenders temporarily prevented from taking action for non-payment of rent. But as more tenants reach a tipping point on viability, so more retail property owners are likely to be affected and a lack of liquidity and the potential of breaching income and loan to value requirements on their lending facilities may see more failures in the months to come.

If you need commercial property legal advice contact James Burgess on 01484 821 300 or visit here for more information. 

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This is not legal advice; it is intended to provide information of general interest about current legal issues.