Retailers turning their hand to property investment to oust their competitors and open new stores

by Alfie Carlisle, Clarke Willmott

A fascinating new trend has recently become apparent on the UK high street – that of retailers acquiring overriding leases of their competitors’ buildings or simply purchasing the freehold from the current landlord.

By default, business tenants benefit from “security of tenure” under the Landlord and Tenant Act 1954. Unless the parties have agreed to exclude the provisions of the Act, the tenant has an automatic right to call for a renewal lease at the end of the term.

The landlord is only entitled to oppose this request on a limited number of grounds. Among these is the “own occupation” ground, ie if the landlord wishes to use the premises for its own occupation or business, it is entitled to resist the tenant’s request for a renewal lease. A landlord cannot currently rely on this ground if it has held its interest in the premises for fewer than five years.

Therefore, those adopting this tactic will be looking to strike deals with landlords well in advance of the lease expiry date. One recent example of this first reported in The Times was M&S acquiring an overriding lease of a site in Dorking, Surrey, almost six years from the expiry of the lease to DIY chain Wickes.

There will be a limited number of businesses able to afford to deploy these tactics. As well as the costs of acquiring the freehold or an overriding lease, the new landlord will also need to pay compensation to the affected occupational tenant. This is a multiple of the rateable value of the property.

Retail occupiers concerned about being on the receiving end of such tactics should consider getting ahead of the issue and opening up discussions with the landlord well in advance of lease expiry. Consider re-gearing the lease to extend the term or entering into a reversionary lease, to take effect once the current lease expires.

As with so many portfolio management matters, the importance of taking prompt advice from a professional cannot be understated.

Clarke Willmott is a national law firm with offices in Birmingham, Bristol, Cardiff, London, Manchester, Southampton and Taunton. For more information visit www.clarkewillmott.com
Alfie Carlisle is a solicitor in the commercial property team at Clarke Willmott in Taunton.