Retailers playing hard ball

I was extremely interested to read this article in Retail Week:

http://www.retail-week.com/property/analysis-the-retailers-pursuit-for-favourable-uk-lease-terms/5046366.article

Fashion retailer, H & M, has put forward a tough new set of terms to its Landlord. The terms include:

• A reduction in the amount of rent it would pay if 15% of a shopping centre it occupies falls vacant. If this were to happen H&M would immediately cease paying the base rent and would revert to simply paying the landlord a turnover-linked “top-up” fee.
• The fashion retailer is also stipulating that if the vacancy rate of a centre remained at 15% or rose over a set period, it could further reduce its rent, regardless of whether its turnover stays the same or increases.
• Ultimately, H&M could then terminate the lease if it still wasn’t happy.
• H & M will also have the option to abandon a Lease immediately if a big anchor store in the centre (e.g. Debenhams) leaves.

In my opinion, the above confirms what I have argued in previous posts. Landlords fear empty stores above anything else. Inflation is running at 2.7% (CPI) and 3.3% (RPI) respectively. The article does make clear that turnover Leases are increasingly common in shopping centres and are another weapon at the Landlord's disposal to create a diverse mix of retail Tenants. The article also alludes to problems with the Landlord and Tenant Act (LTA). It gives the example of Westfield and asserts that many stores (in Westfield) have Leases of varying lengths both in and outside the remit of the LTA. It remains to be seen whether or not more retail Tenants will take a leaf out of H & M's book. However the option of turnover Leases, as well as Leases outside the remit of the LTA (and thus the security of tenure provisions giving the Tenant the option of moving on when the Lease expires), would suggest that the Landlord is not completely powerless. The article makes another interesting point- what is a strong covenant (i.e. Tenant) today may not be tomorrow. The recent high street administrations have proved this. If retail Tenants start playing hard ball, Landlords should remember that they are not totally powerless.