Thursday 3 July 2014

Upward only rent reviews - a case for exceptions in retail and food service?

Given the narrow margins and sensitivity to consumer - i.e. market - demand, and their links with employment and economic growth, surely there is a case for abolition of the uniquely UK and Irish lease legislation ref. Upward Only Rent Reviews?

Flexibility and choice in the commercial property market is essential for retailers who need to be able adapt quickly to the changing needs of consumers, especially given the structural change - discounters, convenience and online - currently taking place in the two markets (See British Retail Consortium survey here).

A recent case in point took place on Tuesday in Dublin where the landlord has won its Supreme Court appeal against a ruling that the €1.46m annual rent for Bewley's Cafe in Grafton Street must be allowed fall to reflect market rates, thus reversing a 2013 judgment in the Circuit Court that fixed a new rent on a Grafton street property at just 53% of the previous rent - See more here.

Commercial property owners obviously want the security of predictable rental income-streams, but insisting on retail rents that are increasingly out of touch with consumer market realities - like Dublin retail rentals currently at 50% of Tiger levels - has to eventually result in an acceleration of shop and food service closures, and even more uncertainty in a flat-line market...

A more realistic approach might be a method that allows landlords and tenants to share business risk - and rewards - via a combination of base rental and percentage of sales, thus encouraging developers and landlords to focus on real demand-drivers and actual usage of their properties in the 21st Century...

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