One of the largest shopping centre owners in the country is cutting rents to retail tenants, to provide them with a much-needed boost post-lockdown. Hammerson, the owner of Birmingham’s Bullring, is planning to reduce commercial rents by 30% to help businesses recover from the past year. During 2020, Hammerson collected about 75% of rents owed by its tenants and agreed rent reductions with some shops in need.
Hammerson plans to offer further support to retail tenants in its shopping centres, which include the Victoria Quarter in Leeds, and Brent Cross in London. The announcement is likely to lead to envious glances from businesses across the UK who may be in the process of trying to secure a rent reduction from a commercial landlord. As the law firm for entrepreneurs, commercial lease negotiation is one of Harper James’ specialities.
Commenting on the announcement by Hammerson, Christen Mulingani, a commercial property solicitor at Harper James, said: ‘Rent is often the largest recurring overhead for a small business and for a retail business, whose income has been decimated by the pandemic, a reduction in this expense may very well mean the difference between survival and administration.’
‘A reduction can often make sense for a landlord too. A landlord will always weigh up the implications of a reduced income stream (perhaps for a limited period) versus none at all. The administration of the tenant would mean that any arrears are unlikely to be recovered in full, although any rent deposit held by the landlord could be used, and there is no revenue accruing until a new tenant is found which of course will be difficult in the current circumstances. Not only that, but the landlord will be responsible for payment of business rates on its empty properties with only three months’ relief permitted per unit. Landlords should be mindful that as good tenants with a strong rental covenant will become an asset, competition for them will increase and as a consequence market rents are likely to fall. If they leave their current tenants with no option than to forfeit their lease, it is likely that a new tenant will expect a lower rent in any event. By offering their current tenant a rent concession for a limited period, landlords retain the possibility of reverting to the higher headline rent for the remainder of the contractual term. Given these considerations, it is surprising that the majority of landlords are not following Hammerson’s lead in taking a more cooperative approach with their struggling tenants.’
If your business needs help requesting a rent reduction, read our guide on the subject which features downloadable templates. Alternatively you can arrange a call back to discuss your needs with one of our friendly advisers.