Retail tenants should check the small print

As a fresh wave of lockdown measures cut across the UK with many retailers having to close until early December, retail tenants may be experiencing new concerns about how to pay the rent, but they probably have not thought about what might happen if their landlord gets into financial difficulty.

Even before the pandemic, the high street was undergoing many changes and the restrictions have seen the shift towards online shopping continue.

Faced with such a shift towards online shopping, few were surprised to see the recent demise of Intu, a large retail landlord with shopping centres that include the Trafford Centre in Manchester.  The company was heavily in debt and unable to withstand cash-strapped tenants holding back rental payments.

For the tenants of Intu-owned shopping centres, and of other retail landlords which may be facing similar difficulties, their primary worry is likely to have shifted from their own store footfall and, in some cases, inability to trade, to concerns over whether the outer doors will stay open once the latest lockdown measures are lifted.

There has been much talk around 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 checking the small print on their lease to check where they stand if the worst happens.

The lease may not detail what will happen if a large shopping centre is 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 obligation in such circumstances and it is worth getting advice at an early stage.

In the case of Intu, administrators have taken over the running of the sites, which is to be expected with large retail shopping centres, but tenants may still be adversely affected if there is a change in operational measures, such as the cleaning or security services, or if marketing activity is reduced.

Again, if a landlord’s services are specifically set out in a lease, then a tenant may be able to argue for a reduction in their service charge payments.  Unlike the closure under lockdowns, which have been imposed by the Government, these are factors which come within the control of the landlord.

During the pandemic, the Government has introduced legislation to protect commercial tenants, with landlords temporarily prevented from taking action against their tenants for non-payment of rent.  But as more tenants struggle, more retail property owners are likely to be affected by the lack of cash flow and there will be more landlord failures in the months to come.

This article is not intended to provide legal advice. If you have concerns about any of the issues raised in this blog please contact a member of our commercial property department who can provide you with advice specific to your circumstances.

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