Break clause tactic cuts rents for struggling retailers

Large retailers are using break clauses in shop rental contracts to slash rents by 5-10%, and convenience stores can too.

That was the message from Ross Shine, Brabners Preston’s head of retail estate, who told Retail Express that the tactic had become more popular in the past year.

Changes in shop rent have varied by area. While some have reported increases of up to 300%, other areas have seen price decreases.

The last-resort tactic includes using unconditional break clauses to end the rental agreement for a shop premises. The risk to the landlord of not being able to find a new tenant at the same rent puts pressure on them to accept a rent discount. However, if the landlord believes they can find a new renter easily the tactic can backfire, leading to an eviction.

“Using the break clause is a high-risk strategy so it is only done when you are running out of options,” he said, adding that telling the landlord you are struggling and asking them to reduce the rent voluntarily should be the first step.

If this does not work, Shine suggested there were key indications that a landlord may reduce rent when pushed to by a break clause being enacted.

These include whether many other similar local shops are occupied or empty, the amount of time it takes an empty premise to be rented out, and the rental values paid by other nearby shop owners.

Describing how the type of landlord may also be important, he said: “Large pension funds aren’t so fussed as your shop is only a small block so they are more likely to re-let than negotiate. Councils know there are issues with high streets and they want to help where they can because it is politically sensitive. With individual landlords it depends on their portfolio, if it is a pension fund have a period of vacancy is damaging and they are more likely to play ball.”

He added that retailers should check their contract to see if it contains a break clause before taking any action. Shine also advised retailers to try to add a break clause to any commercial rental agreements.

Read more: Be proactive to get the best deal from your landlord