Giggling squid open their 42nd restaurant
Partner Stephanie Kierans helped Giggling Squid open their 42nd restaurant, situated right in the centre of Welwyn Garden City.
Giggling Squid is thai food with personality and a firm favourite for Team Sherrards.
Founded by husband and wife Pranee and Andrew Laurillard, Giggling Squid opened its first restaurant in 2002 in Brighton, but despite the recent difficult period for all in the hospitality industry, the restaurant chain continues to push ahead with their expansion plans opening beautiful restaurants all over the UK.
Seven Dials welcomes WatchHouse Coffee
Charles Hodder, partner in the Commercial property team worked alongside the London Corporate and Commercial team to assist WatchHouse with the opening their ninth specialist coffee shop which boasts state of the art coffee technology including a Slayer Steam LPx and full brunch service seven days a week.
Sherrards are delighted to continue to support Watchhouse as their vision continues to grow.
You can read more about WatchHouse by clicking here.
Sherrards retail team work with client Evapo expand and explore new business ventures
During the course of the last calendar year Stephanie and the team have advised Evapo on the renewal of three leases; the strategic re-gearing of two further leases and the acquisition of three new units. This is typical of the type of work the commercial property team carry out for a number or retail clients.
The team are also now working with the owners of the company in connection with a new business venture and we have concluded the first, of what we hope will be many, acquisitions of premises for the new concept.
Jamaica Blue opens new coffee shop and café at Kings Walk Gloucester
Jamaica Blue offers coffee made with beans from the Jamaican Blue Mountains along with a contemporary menu featuring classic dishes with a twist using the fresh locally sourced ingredients as well as a range of vegan and vegetarian options, and not forgetting the café’s famous big brekkie!
The store opening came just in time for the festive period for shoppers to enjoy.
To find out more, please contact Terry Fendt.
Landlords or Retailers? Nobody’s a winner. Mike Lewis in ‘The Retailer’.
It’s no surprise the COVID-19 pandemic has had a significant impact on retailers and the sector as a whole. As many retailers were forced to close during both lockdowns, they have been unable to keep up with their rental payments, and as customers continue to self-isolate and stay at home footfall has been significantly lower.
On the flip side, landlords have struggled too with some not receiving payments from tenants, and the loss of protection following the implementation of the Coronavirus Act 2020 (the CA 2020) means they are unable to rely on contractual rights to forfeit commercial leases by peaceable entry, or by issuing court proceedings.
Click here for the full article in The Retailer (page 42) for an overview of the changes applied to the law due to Covid-19.
To find out more, please speak to Mike Lewis.
The Coronavirus Act 2020- The Cat and mouse for Retailers and Rent Payments
The Coronavirus Act 2020 came into force on 26 March 2020 to provide protection to many aspects of society. One such group are retail tenants on the High Street . One of the key features of the Coronavirus Act 2020 (“the Act”) legislation, in relation to landlords and tenants are a moratorium on wind ups, bailiffs and forfeiture. As a recap, forfeiture is when a landlord takes back possession of the premises. Provided there is a forfeiture provision in the lease, a landlord does not need a court order and can simply change the locks.
The Coronavirus Act 2020 provides a moratorium on forfeiture of commercial leases for non-payment of rent. Rent is defined to include any amount payable under the lease. Thus, this applies to all payments required to be made by a tenant including service charge, insurance payments, utilities etc.
The forfeiture moratorium applies as from 26 March 2020 and, after a series of extensions, has now been extended until 25 March 2022, or such later date as may be specified. This means that, whilst the moratorium is in place, a landlord will not be able to evict a tenant for non-payment of rent. Many commentators have shown surprise at the length of this extension and no doubt landlords are dismayed.
A landlord also has lost other recovery methods such as sending in the bailiffs to seize goods to the value of the debt. The Commercial Rent Arrears Recovery (CRAR) can only be used where tenants owe at least 544 days’ principal rent.
A landlord continues to not have the option of threatening Insolvency. There will be an additional three month extension (from 30 June 2021 until 30 September 2021) on the blanket prohibition on statutory demands and the restriction on winding up petitions based on a company’s inability to pay its debts (unless the creditor has reasonable grounds for believing that either COVID-19 has not had a financial effect on the company or that the circumstances forming the basis of the winding up petition would have occurred even if COVID-19 had not had a financial effect on the company). Arguing that COVID-19 has not had a financial impact on your tenants finances is not an attractive or straightforward argument for landlords.
The inability to forfeit, send bailiffs in, or commence the insolvency process portrays a picture of tenants being in the driving seat and landlords being in an extremely weak and vulnerable position. However, landlords do have one weapon in their armoury.
A less known fact is that there is not protecton in place from stopping a landlord simply suing the tenant for rental arrears.
Recent Westfield Case
The courts have been prepared to follow this principle as reinforced by a case brought by Westfield against a tenant earlier in the year.
Many Retailers will be concerned after the High Court ordered a tenant to pay Westfield £160,000 in unpaid rent and service charges that accrued during the pandemic. The retailer had not paid any rent since April 2020. Westfield sought payment for rent amounting to £166,884 and interest at the contractual rate.
The High Court granted Summary Judgment in its claim against the retail tenant without the need for a full trial; signalling in no uncertain terms the Court’s approach and that it is prepared to enforce the terms of leases. The Code of Practice in place for landlords and tenants to settle the position regarding rental payments was deemed to be merely guidance.
Helen Dickinson, CEO at the BRC, said: “This case highlights the weakness of the Code of Practice in that it doesn’t change the legal liabilities of the tenant with regards to rent. Thousands of retailers were legally forced to close by Government restrictions during the pandemic, and thus had little or no income with which to pay rents. While the rent enforcement moratorium has been welcome, it has left the County Court Judgment loophole open that landlords can exploit. The Government must tackle the issue of rent arrears in a way that is equitable to all parties, and doesn’t ignore the loss of trade to shops who have been closed for most of the last 12 months. Unless a more imaginative approach is found, many otherwise viable businesses will be forced into administration, closing shops, costing jobs, and jeopardising future tax revenue for the Chancellor.”
What next after the Moratorium?
The government has made clear, and indeed the recent case referred to above that, tenants cannot view this “break” as an indefinite silver bullet.
The extension to the moratorium on commercial evictions is to allow time for negotiations to take place but the government has also confirmed that where parties cannot agree a mutually beneficial outcome in respect of COVID-19 arrears, new legislation will step in and compel the parties to a binding arbitration process. There is little further information about this and whether arbitrators can provide for payment plans/variations to leases.
Landlords and tenants will be watching carefully what proposals are set out, in the meantime, there will inevitably be further cases where landlords issue court proceedings for rental arrears.
This article has also been published in the British Retail Consortium’s Magazine. The Retailer, on pages 28-29. Click here for the full copy of the Summer 2021 edition.
If you would like to find out more, please contact Mike Lewis.
Pre-pack administration for the retail sector
With the recent collapse of a few retailers, including House of Fraser, and retail parks and shopping centres changing their business structure and appearance with the rise of online shopping, it is time to remind ourselves of what a ‘pre-pack’ can offer to retailers when things go wrong.
What is a pre-pack?
The term “pre-pack” refers to an agreement to sell all or part of an insolvent company’s business and/or assets to a buyer (usually a new company) negotiated before an administration commences, with the administrators then effecting the sale to the buyer immediately after their appointment.
Pre-packs have received a mixed review from the media over the years but have nonetheless been used with success particularly in the retail sector.
Why are pre-packs so criticised?
Historically, the bad press surrounding pre-pack administrations arose from the suspicions of unsecured creditors who saw the management team stripping away valuable assets from a company, carrying on the same business in another company, but freed from their debts, whilst leaving onerous liabilities and debts behind in the old structure.
However, directors of an insolvent business cannot arrange a pre-pack without careful consideration of certain legal issues such as:
- their duties to provide the administrator with detailed information about the business, specifically to enable the administrator to make a proper assessment of its value (and so sale price);
- their risk of incurring personal liability for “wrongful trading”, where they cause a company to trade beyond the point at which there is no reasonable prospect of avoiding an insolvent liquidation. This potential liability cannot be extinguished by a pre-pack and therefore this risk must be carefully assessed and timed;
- their other obligations as directors of a company under the Companies Act 2006 (including non-profiting, care of creditors and other stakeholders of the business).
Since 2009, insolvency practitioners are also required to comply with transparency guidelines applicable to pre-pack administrations. These are called “Statement of Insolvency Practice 16” or SIP 16.
Under those guidelines, insolvency practitioners should disclose to creditors certain details of the deal, such as the name of the purchaser, the price paid and any connection the purchaser had with the former directors and shareholders, any valuations of the business or assets being transferred, the consideration for the sale and the terms of payment.
Administrators may face regulatory or disciplinary actions if they have failed to comply with SIP 16.
Right to challenge a pre-pack deal
Where a pre-pack is implemented by an administrator appointed out of court, often a sale will be completed before the unsecured creditors are aware of the pre-pack and have an opportunity to object. If the administrator is court appointed, the proposed pre-pack will need to be considered by the court and so creditors can make their objections to the court.
It remains however that a challenge to a pre-pack is extremely difficult, with the court generally placing reliance on the experience and judgment of the administrator if he favours a pre-pack.
Creditors also have a right to bring an action against an administrator if the administrator’s conduct has unfairly prejudiced the interests of the creditors, or where an administrator is not performing his functions quickly and efficiently. Again however, these are difficult tests to meet.
A quicker and cheaper way of challenging a pre-pack is to contact the Insolvency Service’s Pre-Pack Complaints Hotline. This may be used where creditors consider that they have been unduly disadvantaged by an administration (or any other corporate insolvency process).
What does pre-pack administration mean to a retail supplier?
Pre-pack administrations are not a perfect answer to everyone’s problem when a company is experiencing severe financial difficulties, but it is another tool available to owners or managers of a struggling business.
Overall, it is generally thought that pre-packs are a relatively quick and efficient way of transferring the business and/or assets of an insolvent company. They have a lesser impact on the costs involved compared with an administration. They can result in a better return for creditors, minimise disruption, save more jobs and limit the loss of goodwill with suppliers, customers and others. The latter is key for retailers who are heavily reliant on consumer confidence in their brands and assets.
To find out more, click here to speak with Michael Lewis.
Rent Reviews: Not to be disregarded
A landlord can only conduct a rent review if there is a rental review provision in the lease. In modern leases, rent reviews are around every three to five years.
Negotiations over rent clauses are crucial because the landlord will have a different objective to the tenant as the provisions often only allow for increases in rent. It is very rare that the provision allows for a decrease in rent and so at the time of review, the rent will either stay the same or increase.
When the time comes for rent to be reviewed, the process can be instigated by notice (in writing) or by parties entering into negotiations. However it is clearly in both parties’ interest to negotiate a new rent and resolve any dispute early on to avoid incurring unnecessary time and costs. Tenants should remember that often rent reviews can be backdated.
The most common type of rent review falls under the umbrella of open market rent reviews – the rent at which the premises might reasonably be expected to let at in the open market. It enables rent to be set according to market conditions at the time of conducting the review (on par with other rents being charged on similar properties in similar areas at the best rate).
How is open market assessed?
Usually an expert assists in helping both parties and more often than not they will appoint a surveyor to decide on the open market rent and help them with negotiations.
The surveyor will determine the value of the new rent in the fairest way, by considering the ‘hypothetical lease’ basing it on assumptions and disregards. The reason for this is that if the surveyor valued the open market rent based on the actual property it may lead to an unfair valuation (say, if the property was in a state of disrepair because the tenant failed to comply with covenants relating to repairs), so the assumption would be made that the tenant has complied with all covenants. Certain aspects will also be disregarded, for example, if the tenant has built up a good rapport with neighbours or if the tenant has made significant improvements to the property, these can be disregarded to give a general unbiased valuation.
To minimise potential risks, it is strongly advised that both landlord and tenant seek professional legal advice to ensure they are fully aware of the rent review provisions of the lease.
After a valuation has been provided to both parties, hopefully they will agree. If this is not the case and parties cannot come to agree a new rent, the rent review clause in the lease usually stipulates a procedure for alternative dispute resolution (ADR) which involves the use of a neutral third party.
If negotiations fail, parties then often look to arbitration where a neutral party comes in to actually resolve the dispute and make a decision, requiring both parties to comply with the final outcome.
The rent continues to be paid at the old rate until a new figure has been agreed. Once the new amount is agreed, it can be back dated to the review date meaning that an additional sum making up the difference may be owed by the tenant, and interest may also be charge
To find out more, click here to speak to Michael Lewis.
The crash of a retail giant: What is left to be said about House of Fraser’s concessions
Online shopping is growing faster than ever and retailers must find a sustainable way to compete. The collapse of House of Fraser is raising serious questions about viability for traditional and internet businesses relying on concessions to promote their products in malls and shopping centres.
There are key issues to consider if you find yourself caught in the middle.
What is a concession
The concession model involves a designated space in one or more department stores (local or national with multiple locations, such as House of Fraser, Debenhams or Westfield) that operates largely autonomously. The concession brand often benefits from a physical separation, with its own signage, walls, furniture and displays and own staff. It may also be operated independently, although more often than not the store has in place legal and operation controls over distribution, profits and reporting. The benefit of a concession model is that it is moving away from the wholesale model of a distribution, by selling products direct to consumers. Most concessions are subject to written agreements but if you do not have an agreement with a store in writing, then you should contact us.
From a legal standpoint, the concession relationship falls somewhere between a landlord-tenant relationship and a supplier-retail distributor relationship. Contracts can be as long as 200 pages (including annexes). The concession agreement has certain leasing aspects, employment issues, co-branding, intellectual property and privacy matters to address. The relationship between brand and store is not purely legal of course.
With online retail, brands are trying to move away from the traditional distribution model in order to put their products directly in the consumer’s hands more quickly and efficiently, and to maintain better control. This trend is getting even more more popular as desirable brick-and-mortar real estate has become very costly. As a result, landlords are continuing to look for long-term commitments from brands.
Sometimes the interdependency between landlords/stores and their concession is such that if the mall or store collapses, then the concession (which can sometimes be nationwide) and their staff suffer.
Brands should carefully assess how a concession may be terminated in the event of the collapse or the repurchase and change of control of the store business and the rights and obligations arising on either party.
Particular consideration is needed if the brand agreed to exclude the effect of the Landlord and Tenant Act 1954 which, in certain circumstances, protects tenants at the end of the lease by allowing them to remain in occupation and request a new lease. These rights are usually excluded in concession agreements. The agreement may also provide that the area allocated to the concession holder may be changed at any time. This means that a brand may have to relocate with its staff in an area which no one agreed to go to.
You should also read the contract carefully regarding contribution regarding dilapidation costs and other effects of termination (for example on your stock). This means that you will need to consider relocating the stock on termination of the concession.
Consequence on employees and staffing
Staff working in concessions are generally employed by the brand, rather than the store itself. Even though the store may require the brand’s staff to read and abide by the policies and procedures of the store and attend certain training carried out by the store, the brand remains primarily (and legally) responsible as the employer of the staff of the concession.
There are circumstances in which the store is held responsible for the costs of a breach of employment rights, such as discrimination, but the concession agreement should have anticipated such circumstances by putting in place indemnities for their benefit, should one of the brand’s employees bring a claim against them. Generally, however, any employment claims would be enforced against the brand.
The holder of concessions should therefore consider how to approach small or large scale redundancies, particularly where a large store such as House of Fraser goes bust. If redundancies are necessary, employees with more than two years’ service are entitled to receive a statutory redundancy payment and for their redundancy to be handled fairly. Failure to follow a fair procedure could result in an unfair dismissal claim. In addition, if the store is a big one and more than 20 redundancies are necessary, then the employer must undertake collective consultation and cannot make redundancies for a period of at least 30 days. Specialist legal advice is always advisable in these circumstances.
You should consider whether or not you are insured for business interruption and contact your insurer to find out what steps are required to benefit from the cover.
Bad debts and goodwill
Generally, there will be a provision in the concession agreement to the effect that a store will bear bad debts provided that you observe control procedures. However, you may be asked to indemnify stores from any bad debts incurred as a result of non-compliance with such control procedures.
Some stores expressly state that any goodwill that accrues as a result of your operation of the concession will belong to the department store. However, if this is not stated in the concession agreement, then it is likely that you will own any goodwill that you accrue.
If the store is in breach of the concession agreement, then your chances of obtaining damages will depend on your record keeping of sales, complaints, changes to commission rates, introductions of new lines, footfall, marketing efforts and events, publicity, including on your efforts and success in developing the brand.
When to seek legal advice
On the employment law side, we recommend that the concession seeks legal advice early as part of its plan to reorganise its work force and its business.
For the other cases where there is a potential dispute with the store, it will depend on the type of dispute and whether it is likely to escalate into something which will cause harm to the concessions business. It is very much a question of judgment. Something which starts out small can soon turn into a serious dispute.
Contact Mike for more information.
Retail CVA: Do they ‘unfairly prejudice’ landlords?
With consumers reducing their spending on non-essential items, retailers are experiencing a tough trading environment on the high street. Many retailers are entering into Company Voluntary Arrangements (CVA) to give them some respite. Since 2017, CVA’s have been used by large retailers such as Carpetright, Homebase, and Mothercare to close down a total of 954 stores.
CVAs were introduced to allow a company to continue trading and make an agreement with its creditors to pay back any debts owed over a set period of time. In order for a CVA to be approved, creditors representing 75% of the debt must agree to the proposed terms. Creditors can include employees, trade creditors and also landlord.
However, a vast majority of Landlords have limited options when faced with a CVA, and the recent Debenhams case Discover (Northampton) Limited and others v Debenhams Retail Limited and others  evidences this. The High Court in this case held that “landlords should receive at least the market value of the property he is providing. He should not subsidise other creditors but nor should they be compelled to overcompensate him.”
On 9th May 2019, the Debenhams CVA was approved by 95% of its creditors. The effect of this CVA for landlord’s was store closures, a reduction in the rent, and a release of liability for Debenhams under any dilapidations claims. The CVA also prevented the landlords from exercising any forfeiture rights triggered by the CVA.
A group of landlords opposed to the CVA on five grounds. One of these grounds was that landlords are ‘unfairly prejudiced’ when the rent payable under a lease a lease is reduced. They argued that if Debenhams are in occupation of the property, they should be paying the full amount of rent under the lease, and the reduction of rent would be an expense to the landlord.
The Court rejected this argument on the basis that a few creditors may be “one-off” contracts which reflect the market price. Contrastingly, landlords may have fixed rents in a lease at a historic high figure, or the rent in the lease may increase automatically to exceed the true market rent. It was therefore held that it is not prejudicial to landlords to reduce rents under a CVA. These rents may properly reflect the market price even though the amounts may deviate from the rent in the lease.
To find out more, please contact Michael Lewis.