What legal challenges are in store for UK retailers in 2022?

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Retailers have once again faced a challenging year. But what legal challenges might retailers face in 2022?

Retail lawyers, Royds Withy King, whose clients include Monsoon, Accessorize, AllSaints, Ted Baker, Smyths Toys, and Scribbler look into their legal crystal ball.

No pushover on turnover rents
The benefits of turnover rents are now widely accepted by landlords and retail tenants, but disagreement remains on what constitutes turnover for the purposes of calculating the amount of rent payable, says Royds Withy King Real Estate and Retail Partner Vicky Hernandez.

“The signing of new and renewal leases is being delayed as landlords and tenants continue to disagree over which sales figures should be included in turnover despite accepting that turnover rent leases are the way forward.

“Landlords continue to look for a share of click and collect revenues and financial recognition that many retail outlets now act as mini distribution hubs, yet retailers are no pushover and are digging in their heels on what they argue should be considered turnover.

“A clearer picture is likely to emerge in 2022, but the drafting of turnover rent provisions will remain a cause for delays and discussion. As technology changes so does the way in which retailers operate, and lawyers will always be trying to keep up and ensure that turnover rent provisions reflect this. 

“Whilst the adoption of a more formal RICS code for turnover rents might go some way in helping to reach an acceptable compromise position, this will need to be kept under constant review.”

Fit out delays adding further costs
New store openings are being delayed because of shortages in fit out materials and labour. It will, says Royds Withy King Real Estate Associate Harriet Flamank, get worse in early 2022 before it gets better.

“Shortages in construction materials and in labour are holding back and increasing the cost of store fit outs. That will continue well into 2022.

“Retailers are often given a rent-free period whilst a store is being fitted out and we are already seeing some retailers struggling to open before rent is due. In some instances, a lease includes penalty clauses for failing to open on time, adding further financial pressures.

“Where there is delay, retailers and their contractors should open discussions with landlords to see what support they might be able to offer and to ensure no penalties are incurred. Landlords are likely to be experiencing similar delays and, we would hope, are broadly understanding.

“Contractors who continue to work on fixed-price contracts will struggle and potentially face insolvency adding further to delays. We are already seeing some larger retailers bring fit out operations in-house.

“A welcomed side effect of this may, however, be a more environmentally considered approach to store fit outs, with retailers looking to reuse or rethink the materials they use.”

Employment shortages
Many retailers are still struggling to fill vacancies with high levels of absences and increasing wages. Expect more of the same in 2022, says Malcolm Gregory, Partner and Head of Employment at Royds Withy King.

“Retailers continue to experience staff shortages, made more challenging by high absence rates. This will continue throughout 2022.

“We expect wages to increase as retail employers look to attract new staff. Flexibility and hybrid working is a difficult concept for the retail sector given the reliance on premises and the need to provide on-demand services which customers have come to expect. Developing new ways of staffing and looking for ways to give employees flexibility other than their work location will be key in staff attraction and retention.

“2022 will likely see a shift in the balance of power between staff and their employers, with staff demanding better pay and conditions and voting with their feet if they do not receive what they want. There is no doubt employees are migrating away from retail into sectors which can already offer hybrid working and better pay.”

Greater regulation of buy now pay later providers
The government review of buy now pay later (BNPL) consumer credit is due to report in early 2022. Inevitably, there will be a significant increase of regulation to following, says Royds Withy King Real Estate and Retail Partner Bharat Nahar.

“The review, commissioned by the Financial Conduct Authority, calls for urgent intervention and with good reason. It is estimated that one in every ten purchases already involves an element of BNPL, with more than £39 million in late fees being charged last year for missed payments.

“There are concerns that this is disproportionately affecting younger shoppers. Researchers at Citizens Advice have found that as many as one in eight ‘younger’ BNPL purchasers (aged 18-34) have been chased by debt collectors in the past 12 months.

“As a result of increased regulation, we can expect it become harder for shoppers to use BNPL borrowing, perhaps with greater consumer credit checks by providers. We are also likely to see greater restrictions on how these services can be advertised.”