It is common knowledge that the prosperity of the High Street has been in decline for some time. A 2018 article from Cathryn Pernstich, a Senior Associate at Morrisons Solicitors, discussed the trend of high street shops going into administration and the closure of stores and loss of jobs. It was predicted that the high street (and out of town retail parks) would be looking emptier and emptier which prompted the UK Government to consider initiatives to reinvigorate and preserve the High Street.
Fast forward to 2020 and no one could have predicted the situation we are in now. The COVID-19 pandemic has not done anything to help the already precarious situation of the High Street. The chief executive of the British Property Federation, Melanie Leech, has mentioned that the number of shops remaining open on the High Street could be halved in the next two years.
Businesses had already started disappearing on the High Street, but now this trend will be greatly accelerated by the impact of COVID-19. Andrew Goodacre, the chief executive of the British Independent Retailers Association, told MPs that 20% of its members may not reopen because it would be more expensive for them to run their shops if footfall is low.
What does this mean to a property owner?
As a property owner, you must be wondering what the future is for the high street/retail in general and what can be done to bring in an income from property owned. An empty property not only fails to generate money through lack of rental income, but also begins to cost money, through matters such as disrepair, the longer it stands empty.
How can a property owner protect their investment?
- Diversify the permitted use in the lease – this might allow the tenant to consider running a different business in the property, one which may not be affected as much by the COVID-19 restrictions imposed by the Government.
- Reduce the lease term – perhaps a shorter lease term will be more attractive to new start-up companies who want to take up space but are unwilling to be committed to a lengthy term. Whilst it does not give property owners a long-term security, it may fill in the gap in the meantime.
- Rent deposit – obtaining this from the tenant before entering into a lease will give property owners some peace of mind. If the tenant is unable to pay the rent or does not, for example, comply with its repairing obligations, then the landlord can dip into the deposit to rectify any damage caused.
- Guarantor – as a condition to the lease request that someone guarantees the tenant’s covenants under the lease. The landlord should make sure that the guarantor has the financial capability to perform.
How can a tenant remain protected during the pandemic?
Many tenants have attempted to re-negotiate their commercial rents with landlords, but there is no guarantee that such negotiations will be successful.
- Rent suspension provisions – this could be added to a lease so that rent is suspended/reduced during any lockdown period that prevents a business from trading during normal hours. This suspension can also be extended to include service charge payments or insurance rent payments to the landlord.
- Rent concession letter or rent deferral letter – these letters can be written to the landlord asking for a deferment of rent. These letters can also be personal to the tenant so that it does not bind future tenants to the same concession or deferment.
- Break clauses – this allows the tenant or the landlord, or both, to end the lease early. This gives the tenant more flexibility if their business is not doing well as it provides the tenant with an opportunity to terminate the lease early and remove the need to pay rent on a property.
As you can see there are options available for both property owners (landlords) or tenants and the above illustrates some of them. Whether the options will help the high street in the long run is yet to be seen. We are facing unprecedented times and experts in the field are gauging the implications day by day.
Other articles from September's newsletter
Although correct at the time of publication, the contents of this newsletter/blog are intended for general information purposes only and shall not be deemed to be, or constitute, legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article. Please contact us for the latest legal position.