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Are upward-only rent reviews a thing of the past?

Posted on Thursday, 4th July 2013 by
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Recently Dave Forsey, Chief Executive of Sports Direct claimed that “upward-only rents in the UK are a thing of the past” after 75 % of Republic’s landlords backed the proposal to renegotiate the leases of Republic stores. Sports Direct bought Republic out of administration earlier this year with a warning that stores would be closed if landlords did not agree to reduce the rents.

20 Republic stores will still have to close as Land Securities and Intu rejected the plans to reduce the store’s rent to either 15% of the store’s turnover or 50% of the current rent, business rates and service charge, depending on which was higher.

Did Land Securities and Intu have to back Sports Direct’s proposal?

Legally a rent review is upward only; therefore a renegotiation of the rent can only result in an increase. However, at the end of the lease term the tenant has the right to demand a new lease. Any new lease will be on “fair market terms”, so if the market rents have gone down since the previous lease then new rent will be lowered.

 

Unless the tenant demands a new lease at the end of the term the landlords are well within their rights to continue a lease at the current rent. If Market rents have gone down since the previous Lease but the Tenant is staying anyway, the landlord can let the tenant simply hold over on the current Lease. The landlord will avoid the potential for the new rent actually being lowered, however the Tenant can then quit on relatively short notice rather than being tied in to a new term.

A Sports Direct spokesman said they were “pleased that so many landlords have agreed to our proposal and that the Republic brand can remain on the high street.” In the current economic climate we have seen a drop in high street sales and vacancy rates of premises at their highest since the British Retail Consortium started recording them in 2011, with one in eight shops in Britain now boarded up. Retail however, is still an important business sector in Britain is with 4.2 million people employed; over 15% of the workforce.

 

So should landlords be trying to help keep the high street alive?

 

Where possible landlords could look to aide the success of the high street, but rent may only be a factor in the closure of some stores and it is only one of many possible reasons for the current slump in the high street. The British Retail Consortium is campaigning for a freeze in business rates after George Osborne failed to do so in the last budget and has subsequently delayed any overhaul of rates system from 2015 to 2017. Increased parking charges in town centers, cautious consumer spending and the competition from online retailers could also be to blame.

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Douglas Wemyss - Commercial Property
Douglas Wemyss - Commercial Property
douglas.wemyss@ehlsolicitors.co.uk 0116 266 5394
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