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.

The Contract

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.

Termination notice

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.

Insurance

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.

Damages

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.

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 [2019] 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 9^th 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. 

Dry January followed by Valentines Day – Mike Lewis from the Sherrards Retail Team investigates the ramifications…

The press is full of stories of astronomical Business Rates and struggling public houses – ‘Dry January’ must only exacerbate this. However, friend of Sherrards, Sean Hughes, the publican of several of the finest bars in St Albans (Dylans The Kings Arms, The Plough & The Boot), turned this theory on it’s head and, in a rather optimistic light, told us:

“January for us at Dylans is a time for fresh ideas and an opportunity to try out some exciting new products. We launched our first draught non-alcoholic Craft Beer by BrewDog on tap this January to encourage people out of their homes and into a more sociable environment. We also offered a variety of new non-alcoholic drinks to support those wanting to do dry January. Sales were up year on year, and I believe that the future does lie with more non-alcoholic drinks on offer and this is something that we are looking to build on following the success we had over January.”

With Dry January over, next to look forward to is Valentine’s Day, and with 2020 being a leap year, the less commonly celebrated day known as ‘Bachelor’s Day’ is also fast approaching on the 29^th February. Bachelor’s Day first appeared as an Irish tradition and allowed women to propose marriage on a leap year. If the man refused the proposal, he was obliged to buy the woman a gift, such as a fur coat, or silk gown.

So, whether you’re buying a valentine’s day present, an engagement ring, or are turning down a marriage proposal with a lavish gift…

What are your rights as a consumer if you want to return the goods?

Goods Purchased at a ‘Distance’

If you bought goods online, by mail, or over the phone, the Consumer Contracts Regulations 2013 (‘Regulations’) give you rights as a consumer.

Under the Regulations, you have a what is known as a “cooling off period” which will begin at the moment you place your order and will end 14 days from the date you receive your items.

You will also be given an additional 14 days to return the items to the retailer – the period of this additional 14 days begins from the date you notify the retailer that you wish to cancel your order or return your goods.

There are, however, some exceptions where you are not entitled to cancel or return your items, including but not limited to bespoke, or personalised items.

Goods Purchased in Store

As a consumer, you can only return or exchange non-faulty goods you have bought from a store if the retailer has a returns policy.

It is not a legal requirement for shops to have a returns policy, however, if they do have one, they have to follow it.

Many retailers will specify time limits for returning non-faulty goods, with some offering 28 days. You can find a retailer’s return policy on their website, by calling their customer services department, or on the receipt for the goods.

Returning Faulty Goods

Consumer rights for returning goods are contained within the Consumer Rights Act 2015 (‘the Act’).

Under the Act, you have the legal right to a refund if you return a faulty item within 30 days of buying or receiving it. You are entitled to this refund regardless of what the retailer’s returns policy says.

Contact Mike for more information.

Temporary letting of space is becoming ever more popular in the retail market.  Pop up retail shops in particular have a variety of benefits including the relatively low cost associated with securing and opening them.  By their very nature, they are almost tailor made for the sale of seasonal products, such as those associated with halloween and Christmas. They can also be a great way for new retailers to test the water in the market place and for established companies to try out a new location. They generate awareness of the brand as they are usually located in areas with high footfall.

They also appeal to landlords keen to avoid having empty units in their schemes or on their high streets. In what is a tricky time for retail generally, many will consider offering short term leases to fill voids and encourage growth.

Depending on the bargaining powers of those involved, tenants looking at taking space on a temporary basis may want to think about the following when negotiating heads of terms:

• The term of such a letting is typically between 3 and 6 months. However, anything up to 12-24 months would still be a short-term letting. If a longer term is agreed, the tenant may also need to consider the option of determining the lease before the end of the fixed term.
• Rents based on turnover. If the unit is a success, the retailer pays more, but if not they pays less.
• Capping service charges or fixed rents inclusive of service charges
• Limiting the usual repairing obligations to hand back the premises in the same condition as they were in when taken – by reference to a photographic schedule of condition.

When it comes to documenting a temporary letting, the leases are usually short and simple with fewer obligations on the parties.  If the rents are low and the term short, then stamp duty land tax and registration at the land registry are generally not relevant. Given the nature of the letting, property searches and extensive due diligence can usually be dispensed with.  This means a less expensive conveyancing process as well as a low-cost set-up.

Article also featured in The Retailer spring 2019 edition.

To find out more, please contact Stephanie Kierans. 

Watch House Coffee started life at a small yet cosy ‘watch house’ on London’s famous Bermondsey Street, historically a shelter for men guarding St Mary Magdalane Church graveyard at night. Further locations followed at a former spice factory near Tower Bridge and on Fetter Lane in the City, where you can enjoy your coffee under its long grass roof and leafy ceiling.

Partner Charles Hodder has been working with Watch House Coffee over the past two years, advising them on their commercial leases; most recently on the Fetter Lane site.

Menkind started in 2001 as a gift shop that offered ‘I’d-really-like-that-for-myself’ kind of gifts. The gift and gadget store continues to grow and expand with the acquisition of tech brand RED5. The brand now has 66 stores across the UK.

To see what’s instore, or to buy online. Click here.

To hear about similar cases, please contact Terry Fendt. 

In September, Partner Stephanie Kierans helped Giggling Squid open their 37^th restaurant yet in the Old Library on Wheeler Street in Cambridge.

The opening marks a new chapter for the beautiful building which has been exquisitely decorated by the co-founder, Pranee Laurillard, taking inspiration from Thai traditions. This is the restaurant chain’s largest premises to date and reflects their ambition to continue with their expansion plans.

To find your local Giggling Squid, click here.

The Sherrards property lawyers have a well-deserved reputation in the retail sector for cutting through the legal jargon and getting the deal done. With ambitions to open 1,000 stores by 2020, Rituals looks to Sherrards to help them secure properties in high end locations in the UK.  In addition to new stores in Bicester Village and Marylebone High Street, Sherrards has worked with the Rituals team this year on new openings at London Bridge and Kings Cross stations.

Terry Fendt, who heads up the property team at Sherrards said, “Working with clients in the retail sector is both exciting and challenging. Opening new shops on the high street is pretty rare these days and in the current economic climate, it is great to work with a company that is thriving and expanding.”

Matthew Lee, Head of Store Expansion and Real Estate at Rituals comments “There is a great deal of work behind the scenes before we open a new store.  We trust Sherrards because they have a dedicated team of specialists who understand the need for speed, flexibility and determination to navigate through negotiations and achieve the right result for us.”

The award-winning fitness club brand started life with one franchise in 2003 but now has clubs all over the UK, Europe and the Middle East. This latest development, bringing the head office and training centre together with a new club in Milton Keynes will be good news for its 100,000 members.

The Sherrards legal team has a leading reputation in franchising, working with clients in the retail, automobile and leisure sectors on their commercial and property needs. Understanding the intricacies of the franchising world, means the Sherrards team are focused on making sure the deal succeeds with both parties benefitting.

Terry Fendt who led the team advising on the legal aspects of the deal commented, “We’ve worked with énergie Fitness for a number of years now assisting both franchisees and the franchisor. The franchising business model attracts dynamic and ambitious people and leads to some great work and opportunities. The team at Sherrards responds incredibly well to this and provides legal advice and client service to match.”