Resident law firm, DWF, considers the prospects for the retail sector in 2013

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Stephanie Bagshaw, real estate associate at Retail Times’ resident business law firm DWF, looks at how landlords can improve conditions for businesses and coax shoppers and their wallets back to the high street

Following the announcement in October 2012 the UK has moved out of recession, many are questioning what this means for the UK high street. While most shoppers are expected to hit the high street hard in the run up to Christmas, spending a predicted £86bn – an increase of 1% on last year – it is expected that 1.7m will do all of their shopping online, 6% more than last year. Arguably this, in part, can be attributed to the number of retail units lying vacant on the high street, inevitably leading to further empty units.

Despite the Government committing over £2.7m to improve shopping areas across the country, it is clear shoppers and prospective business tenants alike are being put off by the state of the UK high streets. Further, for those already renting spots on the high street, the majority find themselves subject to the ‘institutional lease’ which can leave them with long, inflexible terms; significant occupational costs by way of rent, service charges and rates in the face of uncertain returns; and few, if any, penalty-free break clauses. 

What are the options?

As a result of the recent Portas review, some high streets across the country are receiving Government cash injections to make them more appealing, while others are seeing investment from landlords in the form of window stickers that create the appearance of a fully stocked shop – making the high street seem less deserted both to shoppers and potential tenants. 

However, there are other options that can provide a more immediate respite for beleaguered landlords. Allowing ‘pop up’ ventures to set up shop on a temporary basis can generate income, while installing not-for-profit groups on a so-called ‘meanwhile lease’ can reduce the costs associated with empty units by asking them to contribute to the general overheads. 

What is a ‘meanwhile lease’?

The ‘meanwhile lease’ is the mainstay of the Meanwhile Project – a scheme set up by the Communities and Local Government Department and the Development Trusts Association as part of the attempt to revitalise the high street. The lease offers not for profit organisations such as community groups, learning providers and charities the opportunity to occupy a position on the high street that they otherwise could not afford, while the landlord is able to continue to market the premises to find a commercial tenant.

The leases are signed on a temporary basis, often for three or six months, and include break clauses allowing the landlord or tenant to end the contract at short notice. The tenant is asked to pay a nominal rent, take responsibility for the business rates, and forego their right to security of tenure under the Landlord and Tenant Act 1954. This arrangement means the landlord can have the property returned to them on relatively short notice should they get a commercial tenant secured, while allowing the meanwhile tenant to better manage their finances as they do not have to put up a large rental sum in advance.

Landlords: what’s the advantage?

The Meanwhile Project offers support to landlords, local authorities and town centre managers to work with not-for profit groups to create innovative ‘meanwhile uses’ for vacant units while permanent residents can be found.

As part of the scheme, a set of template meanwhile leases have been made freely available, allowing landlords to keep administrative and legal costs to a minimum. When combined with the interim tenants taking on the cost of utilities, security, business rates and insurance costs, as well as taking responsibility for maintenance, landlords can find the associated costs of empty premises greatly reduced. 

As well as the option to deal directly with meanwhile tenants, landlords have the opportunity to rent the property to an intermediary, such as a local authority on a similar basis. The intermediary will then sub-let the property to not for profit organisations on a temporary agreement. 

Alternatives to the standard ‘meanwhile lease’

The standard documentation that has been made available can also be tailored to fit the particular terms agreed between the parties. For example, if a community group has taken a vacant unit to hang its artwork, it may not want to take on the responsibility for the ongoing maintenance of the whole premises, or the liability to pay full rates, and these terms can be written into the standard documentation. The basic template could also be altered to accommodate commercial tenants who wish to take a unit, for example start-ups wishing to set up a ‘pop up shop’ on a temporary basis.

Can meanwhile tenants really help improve the high street?

The Meanwhile Project is based on a sound premise – when vacant units are utilised the high street becomes a nicer place for shoppers, and encourages increased footfall. In turn this makes the shopping area more attractive to commercial tenants. It can also improve the general community atmosphere by raising awareness of non-commercial entities, offering them support and a prominent place to operate from, while creating a renewed sense of commercial activity in a previously stale area.