In October 2016, law firm Howard Kennedy helped Australian lingerie retailer Honey Birdette open its first three UK boutiques. On this guest post, solicitor Vanessa Laundon highlights the five things every lingerie retailer should consider before signing a new lease.
Type and length of lease
The first thing to consider is the type of lease you are being asked to sign and its length. A typical lease is for 10 years, with a break clause after five and a short lease would be for five years with no opportunity to break. A lease can be for a fixed amount of rent, payable every quarter and subject to a rent review in year five, or based on your turnover.
“Turnover leases will typically comprise a lower base rent supplemented by a percentage of the retailer’s turnover,” Vanessa says, “however retailers should examine turnover leases carefully, paying particular attention to whether turnover is based only on the store’s trading or whether it includes online ‘click and collect’ sales.”
Inside or outside the Landlord and Tenant Act?
Before signing a lease, it is important to know if the lease will be ‘inside’ or ‘outside’ the Landlord and Tenant Act 1954. If the lease is inside the Act, the retailer automatically has the right to renew the lease when it expires and the landlord can only force you out on certain statutory grounds, for example redevelopment of the property. If outside the Act, the landlord can kick you out at the end of the term if, for example, offered a higher rent.
A standard retail lease will typically include standard clauses that restrict how and when the property can be used. Such clauses are there to protect the landlord from the premises being used for illegal or immoral purposes and that trading will not cause offence. Given these clauses can be drafted conservatively, lingerie retailers in particular should make sure their use won’t fall foul of this clause.
Discussions should also be held with your landlord in advance of signing any lease to agree signage and window displays, particularly those which may be considered risqué by a conservative landlord.
Deciding to leave a lease early by exercising a break clause can and does cause retailers considerable trouble and expense. Before signing any lease have your lawyers examine the wording of any break clauses and negotiate if you believe it to be unfair as break clauses are strictly enforced and even a minor breach can leave you liable for the entire term.
“The only conditions we recommend tenants accept are payment of principle rent and delivering up the premises free of third party occupation,” she adds. “Trying to comply with conditions which go beyond those, for example compliance with tenant covenants in the lease, can cause real issues. There is a whole body of case law where tenants have fallen foul of onerous break conditions and have been held liable for a full lease term as a result.”
Watch for additional costs
Retailers in shopping malls need to take into account services charges, which will clearly be set out in a lease but are rarely negotiable.
“Taking a retail lease need not be complicated or expensive, but it is advisable to have your lawyers onside from the start. Review and understand the terms of lease, and be prepared to ask questions or negotiate.” Vanessa Laundon is a senior associate in Howard Kennedy’s Real Estate team and can be reached by email [email protected]