Landlords: reform archaic 1954 act
Posted by Property Week on 14th Jun 2013
Property owners call for reform to aid innovative and dynamic retail sector. Kat Spybey reports
A 60-year-old law that gives security of tenure for retailers should be reformed to allow greater flexibility within the retail market, the Ellandi Retail Property Rocks conference heard last week.
At the event in London, which was attended by around 170 people from the retail and banking industries, landlords said they were being flexible by agreeing shorter leases, but that the Landlord and Tenant Act 1954 is archaic and limiting innovation.
Speaking at the Geological Society in Piccadilly, NewRiver Retail managing director Allan Lockhart said: “What really frustrates us, which we would like to see reformed, is the 1954 act — the clue is in the name. Retail is a very dynamic sector but it is governed by old rules.
“With retailers wanting shorter leases and greater flexibility, it’s only right that property owners should have greater control over their assets. I want reform, so that we have the ability to take possession back from retailers that we feel are underperforming or not adding to the overall retail mix.”
He added that reform would also benefit retailers, as landlords could ensure they have complementary brands alongside them and the best occupiers to draw people into towns and shopping centres.
Mark Robinson, co-founder partner of Ellandi, said: “We are in danger of an invidious position as UK landlords, where we are heading towards the European model of lease lengths but still lumbered with an historic form of tenure.“
Our investors understand the European model and that they will get shorter leases, and perhaps more localised covenants but, at the moment, there’s a critical imbalance in the power of the tenure.”
Lockhart added that he did not mind shorter leases across his portfolio, “so long as the performance from the retailers is sustainable”, but he warned: “The greater frequency of lease events coming through does have costs, and we have to control those, as that eats into performance.”
But bankers warned shorter leases could make lending to the sector more difficult.
Gregor Bamert, head of UK real estate at Barclays, cautioned: “I don’t think we share the enthusiasm for short leases that we are now seeing. That doesn’t mean we think the model of 25-year leases in all situations is right.
“Looking at what’s happened in the downturn, clearly the lease structure has been an impediment to recovery for some retailers, but funding assets when you have got income locked in for 25 years or for five years are very different propositions.”
Robinson predicted the more favourable deals for retailers meant “occupationally there could be a slightly better bounceback than anticipated”.
Landlords’ big retail issues
“When we talk about the yield gap [between prime and secondary centres,] that’s slightly misleading because that has been distorted by over-renting and one of the biggest issues now is: ‘What is the market rent?’
As leases fall away at expiry, those yields are going to drop dramatically”
David Henderson-Williams, co-founder, Hark
“It’s important not to turn our backs on the rest of the town. If you own a shopping centre and want to increase dwell times, you need to look at what else the town has to offer.
“That’s one thing Mary Portas has got right — for the towns that thrive, it can’t just be about shopping”
Mark Robinson, co-founder partner, Ellandi
“Eighty per cent of the UK population doesn’t live in London, so there really are opportunities in the regions. New lenders coming into the market tend to be slightly cautious and focus on core markets, so it will be core lenders that may gently trip out into the regions first.
“The great difficulty with retail is that a lot of the property has been designated as tertiary, ‘quaternary’ or ‘worsery’, and that’s making lending decisions when you go there harder”
Michael Kenney, head of origination, Deutsche Pfandbriefbank
Source: Property Week