I do not apologise for this lengthy quote from Nils Pratley in the Guardian as it is key to my argument that follows. Talking of a recent statement from Next, the retailer, Pratley discusses the situation Next has negotiated with regard to its rents during this crisis:
Here's what Lord Wolfson's report revealed about the 80 shop leases that expired last year: 18 stores were closed and the average rent reduction at the other 62 was an astonishing 58%. On slightly more than half the renewed leases, Next negotiated a switch to turnover-linked rents, protecting itself against a steep drop in sales. Even with that insulation, it renewed the leases only for an average of three years.
It was a pandemic year of lockdowns, so tenants' bargaining power was maximised, but Wolfson predicted more of the same. Another 56 leases will expire this year and Next anticipates average rent cuts of 47% and, once again, three-year terms.
A year ago I wrote a great deal about the need for rent reform. It seems that the very largest retailers have taken matters into their own hands and renegotiated leases downwards. That will help their part of the economy asurvive.
But what about everyone else? What about the small retailers without Next's clout?
And what about private tenants?
Will they be seeing 50% or so rent cuts? I doubt it.
And yet they too need such cuts, and rents linked to their capacity to pay. But they don't get them.
So we still need rent reforms, and urgently. The injustice of the rentier economy is real and ongoing.
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Some suggestions might be………….
1. Set some targets for average house prices, and
2. Impose controls over who is allowed to own land and property in the UK & the uses that land or property can be put to.
3. Compulsory sale orders for vacant/badly managed land and property
Both would give a clear steer to landowners and potential investors
I am Chairman of a local community organisation which leases premises to serve as a multipurpose community hub. we recently re-negotiated our lease and put it on to a profit (operating surpluses) sharing basis. We no longer pay rent – we pay an agreed share of operating surpluses (“in lieu of rent”) with the property owner. In doing this we have created a revenue-sharing partnership which replaces the former traditional tenant/landlord relationship. Both parties have a shared interest in increasing the revenue potential of the asset so will be jointly investing in it in order to achieve that.
we are now intending to apply this model to the community management of other assets which are currently owned by the local authority or other public bodies – we belive that this form of revenue sharing partnership is the best model for “asset transfer” under the provisions of Scotland’s Community Empowerment Act 2015.
It is also the basis of the “Equity Direct Partnership” mode of pension fund investing that I proposed in my “Proposals for a National Pension & Investment Fund” (see my guest posts for which Richard kindly gave his permission for me to share on his blog last week).
Jim
Brilliant
And great to prove it is possible
Richard
The cat is out the bag. No longer can landlords look away and pretend it will all get better. Real transactions in decent size are going through at levels that are really MUCH lower than most people might have expected.
Who will agree a new lease at anything less than a 50% cut? Who will honour existing leases at high rents when they can’t earn a crust.
British Land was at 600p prior to Covid – it fell to 325p but is now back at 525p. Not sure that the penny has dropped yet.
It hasn’t
The question of turnover linked rent is interesting to landlords, it could very much work in our favour under the right circumstances. I suspect it will only be on the larger premises and the larger tenants but we shall see.
Retail has longer leases because of fit out costs and the need to prevent landlords destroying that investment when a lease ends outside the L&T act. Many retail tenants will not get the chance to use such a new concept for years so for now it is just an interesting test.
In the meantime what of the rateable value and business rates? Will it change every year and do local authorities have the organisation for that? The first consequence of this action by Next will be a lot less business rates income to the local authorities! What will you cut to accommodate that? Or how does the authority replace the income?
The landlord reappears
You deceive yourself
You think the landlord still has the power
In the commercial sector oversupply will break the landlord
I regret that is nit true in the private rental sector as yet
Your power has gone
Rent linked to turnover could be favourable for Landlords…… but is it likely? 3 year leases might allow a renegotiation up in 3 years time…. but is it likely? In the meantime, the data says rents are down 50% – that is a fact.
I agree, local government finances are a mess….. but ultimately, for better or worse, they will have to rely on Central Government.