Aurora Fashions- fashioning Leases for tough times

I was not surprised to learn that Aurora Fashions has entered into negotiations with Landlords seeking favourable rent and other terms. This is hardly surprising against a backdrop of stubborn inflation and persistently weak economic growth. When you throw in business rates (which it has been estimated costs the high street some £175m) and empty property rates it is no wonder the future looks bleak. Thus, many businesses will not want to be locked into a 'straightjacket Lease.' Many Tenants will try to negotiate monthly payments, rent free periods or even less onerous break options. As the economy continues to flatline, we may increasingly see new Leases replacing the old 25 and 50 year Leases. What will the new Leases look like?

• They may well be as short as 5 years or even less. What qualifies as a 'strong covenant' today may not tomorrow.
• They could exclude the operation of the Landlord and Tenant Act (LTA) 1954. This will alleviate the Landlord's concern that an underperforming Tenant will not 'move on' once their term has expired.
• Break clause conditions may well be less onerous. Traditionally, Landlords have drafted very tight and narrow break clauses designed to penalise a leaving Tenant. Lax break options will allow a Tenant to move on and the Landlord to create a diverse mix of Tenants in their centre or premises.
• Restrictions on assignment may well be relaxed. A struggling Tenant may wish to sub-let part of their premises to an under-Tenant. A Landlord should be encouraged to view this positively if it will allow a Tenant some breathing space to trade.

In short, a new style Lease suited to tough economic times contains advantages for both the Landlord and Tenant. It gives a struggling Tenant some leeway and allows the Landlord the chance to easily bring in new Tenants if things don't work out. The recent trend of administrations may well be showing that new fashions are replacing old ideas...