Posted by Peter Foskett, Partner
Common issues in leases of retail premises
The Retail sector team at Royds Withy King deals with all manner of commercial issues; one of our particular specialisms is acting for well-known retailers in leasing new or alternative premises all over the country. The nature of such lettings raise a number of issues that may need to be dealt with if a retail lease is to be fit for purpose.
What makes a retail lease fit for purpose?
- Although most units on retail parks tend to be no more than a steel frame with cladding and a roof, repairing obligations need to be looked at closely. Roofs, in particular, can cause problems due to cut edge corrosion and leaks, so a thorough investigation would be appropriate to identify any problems and to have them dealt with before the lease is completed.
- Many leases give the landlord the option to decide whether or not they want the tenant to reinstate at term end. If that is the case, the lease should oblige the landlord to make a decision at least three months before term end, so that the tenant has enough time to organise the reinstatement works. It is common for leases not to deal with this, so an appropriate amendment may need to be negotiated. If the lease contains a break option that is conditional on vacant possession, it is vital that the tenant has sufficient time to remove its shop fit and other works.
- Many leases contain a prohibition on putting up posters, advertisements etc. in the windows. It is common for retailers to use window space to advertise sales and promotions so the lease should specifically allow the tenant to use an agreed proportion of window space for that purpose.
- Many leases require landlord consent for signage. It is better for the lease to refer to designated signage zones, within which the tenant can erect and replace its usual corporate signs without having to obtain consent. That will avoid the delay and costs associated with obtaining landlord consent.
- Leases tend to regulate alterations to a unit, such that certain alterations are prohibited and others require landlord consent, which involves sometimes significant costs. Consider trying to negotiate terms, such that non structural alterations do not require landlord consent as long as the landlord is given plans/specs of the work once it has been completed.
- It is fairly common for large stores to have concessions where part of the space is occupied by other retailers with complementary product ranges. Most leases, as a matter of course, prohibit the sharing of occupation or possession so it may be necessary to negotiate a right for the tenant to grant concessions without requiring landlord consent.
- Many tenants have break options in their leases in case a new location does not turn out to be successful. Care must be taken in negotiating the terms of break options, to avoid them becoming inadvertently invalidated. There is a lease code that recommends how break rights should be structured, so the tenant’s solicitor should use this as a starting point to negotiate out non-compliant drafting by the landlord’s solicitors. Care needs to be taken to make sure that the break date does not coincide with a rent review date, or occur after a review date has occurred. If the rent review has not been settled by the time that the break option takes effect, there could be an argument over whether the tenant has paid the full amount of the annual rent (which is usually a condition to the break option being validly exercised) because the revised annual rent will not have been ascertained. That could be disastrous.
- Many leases state that the tenant cannot assign it to anyone who is of a lesser covenant strength. That should be avoided because, if the tenant has a financial covenant strength far in excess of what would reasonably be required, that would preclude, smaller, prospective tenants whose covenant strength would be good enough were it not for such an artificial restriction.
Customers need car parking spaces, so it may be worth considering seeking a commitment from the landlord of a retail park or outlet to maintain not less than the minimum number of customer car parking spaces at all times whilst the park/outlet is open.
Looking for enter into a new lease or renew the lease for your retail business? For expert advice and to secure you the best terms, contact our Retail team on:
0800 923 2073 Email us