The solution to our high street crisis
It feels as if the crisis on our high streets and in our shopping centres is reaching new heights right now. The moratorium on evictions has been extended again, this time until 25 March 2022, which has, at least, given struggling commercial tenants a little breathing space. However, the government has delayed the relaxation of social distancing until much later in the summer, leaving many businesses closed and many more operating on significantly reduced capacity.
It’s a perfect storm that could leave our high streets and cultural hubs desolate and UK commercial tenants and landlords in desperate need of a major rethink. This is where ‘sustainable restructuring’ comes in – and we think it’s the solution.
Why do we need sustainable lease restructuring?
As things stand, commercial leases are often unaffordable for tenants. A small restaurant chain or retailer may accept the terms initially, but somewhere down the line things change and they can no longer pay the same rates as the large chain next door. The rent is unaffordable
So, the landlord could try to get another tenant in to take over the location, but they’re still asking for the same rent per sq metre as the large chain next door. No one can afford those rates and the prime site, right in the middle of the high street, sits empty and boarded up. No one is making any money from it, and the local community has to live with yet another empty shell instead of a thriving business.
An example is the LloydsPharmacy chain, which has had to close around 100 of its branches over recent months due to “cost pressures and declining footfalls”. Chris Keen, the business’s CFO wrote a piece in the Retail Gazette in June 2020 explaining the situation as he saw it: “Some of these large retailers are, frankly, facing imminent death from the mortal wounds inflicted by the pandemic. Landlords – confronting their own financial hardship – could be rightly concerned about the likelihood of ever receiving their income.”
He added: “landlords need to understand that [average retailers] forbearance will help secure their income long term. Their interest – just like ours – is in a sustainable business.” We couldn’t have put it better ourselves!
This is the crux of the problem we’re dealing with and the effects of the Covid-19 pandemic means this is happening up and down the country. Here at Cedar Dean, we’re all about giving tenants back some power.
A staggering 68% of the commercial tenants we spoke to in our recent Covid-19 survey said they have been forced to consider lease restructuring or insolvency. We would argue that the former of these is the best option for tenants AND landlords. We also believe we can help tenants and landlords with developing sustainable restructuring that works for both parties over the long term.
What is sustainable restructuring?
There are many ways in which a lease can be restructured to become more sustainable. Here are some of the common lease restructuring techniques:
• Rent – free incentives
• Capital contributions
• Rent reductions
• Lease extensions
• Service charge negotiations/capping
• Introducing break options
• Negotiating new renewable lease terms
The Mayor of London’s recent High Streets and Town Centres Adaptive Strategies report looked at these issues in depth. It suggested that sustainable restructuring can work to landlords’ benefit, just as much as tenants. It explained:
‘Landlords can provide long-term, wide ranging business support services to tenants for mutual benefit: successful businesses will make more resilient tenants, more able to take on longer leases.’
We absolutely agree and have been working with tenants to confidently and effectively renegotiate their leases mid-term, to really make a lasting impact on their business sustainability. Landlords are increasingly open to negotiation as they face the prospect of their properties sitting empty for extended periods of time. For tenants, it’s a great time to re-examine your lease and see where changes can be made that will make it fairer and more affordable.
The takeaway
These are trying times for bricks and mortar businesses trying to survive in our towns and cities. As we emerge from the worst of the pandemic and consumers start to socialise, shop and spend again, it’s vital that commercial property leases reflect the times we are living in. Landlords need to accept that lease restructuring generates sustainability and that this, in turn, creates community value and prosperous high streets.
