In any retail business, the trading premises represent one of the biggest overheads and, therefore, are potentially one of the biggest headaches that business owners face. In convenience stores, everything about their shop has a role to play in making them successful in a competitive retail environment. Hopefully, property problems will not come along very often, but when they do, they can be complex and expensive to resolve.
This is particularly true of leasehold premises where a transactional issue such as a rent review or lease renewal has to be faced every three to five years. Throw into the mix periodic problems with difficult landlord’s agents and it is easy to see why many retailers are very nervous when it comes to dealing with these important transactional matters. So what advice is available for retailers who are tenants to help them become confident in dealing with formal lease issues head on?
The good news is that all transactional matters related to leasehold premises are structured and the dates on which they will occur are known when the lease is entered into. The most important two are rent reviews and lease renewals and they will generally fall into a three or five-year cycle depending on what has been agreed.
The transaction that is the most emotive and often the most difficult to understand is the rent review. The precise way a rent review is decided will vary subtly from lease to lease, but the most important thing to remember is that it should always be dealt with before the date in the lease. I plan to deal with rent review negotiations in detail in a future article, but here I want to highlight the consequences of doing nothing at rent review time.
As I mentioned, rent review dates will be known well in advance and your landlord has a responsibility to contact you within a reasonable period of time and notify you of his intentions. Once he does this, you can enter into negotiations or employ a property professional to act on your behalf. In most cases this happens successfully and agreement is reached quite quickly. However, in many cases I have seen, the date of the rent review is missed by the landlord or their agent and the retailer often carries on oblivious, or they wrongly assume that as the landlord hasn’t contacted them by the date in question, they have escaped!
It is wrong to assume that just because the landlord appears to have forgotten about a rent review, he cannot do anything about it. Most landlords know that any agreement on a rent increase can be applied back to the original date of the review and interest can also be added.
When this happens it’s worth remembering that the landlord is under no obligation to agree not to charge interest and he can also insist upon this being paid without delay. However, many landlords will agree to this being repaid over a reasonable period as they realise the financial hardship demanding immediate repayment would cause.
Missed dates of rent reviews and lease renewals can create a very serious financial situation for retailers and will cause great anxiety and stress unless they are resolved. Doing nothing should not be an option and burying your head in the sand will not make the issue go away. By being proactive and making contact with your landlord or their agent in advance of the date, a complex transaction can be made relatively simple to get through. Your landlord may even appreciate the fact that you got in first and made his life easier.