Wednesday, 23 February 2011

High Street Blues: online growth is bad news for landlords

It was recently reported in the FT that the recent trend of browsing the high street and then making purchases online (using the benefit of the numerous voucher code discounts on offer) is a cause of concern to institutional landlords, who operate our many shopping centres.

One of Fashionista's friends (who knows about all things property) has explained that many landlords have granted 'turnover rent' leases to retailers in recent years when trading conditions have been challenging. A 'turnover rent' lease operates differently from a market rent lease in that the basic rent is at a reduced rate (commonly 80% of the market rent) with the retailer paying an additional sum each year based on an agreed percentage of its gross turnover from the store in question.

This means that landlords who have let premises to multi-channel retailers are potentially losing out on rent where this is calculated only on basis of revenue taken in-store (and reduced by online returns). Savvy landlords are taking steps to ensure that their turnover leases are drafted to expressly include income from in-store internet terminals where orders are made online and to exclude any returned product which has been purchased online. However, even with improved drafting, landlords cannot capture all internet sales made several days or weeks after a visit instore. Plus it makes it harder for landlords to monitor the tenant's gross turnover used to calculate the rent.

Fashionista hopes that this trend will not lead to the high street withering to become a showroom for internet consumers, but given the continuing growth of e-commerce, who is to say?