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Debenhams: A Cautionary Tale

25th April 2019

 

Earlier this month, 206 year old retailer Debenhams entered into administration, following in the footsteps of House of Fraser who succumbed in 2018.

Weak trading and increased discounting no doubt share some of the blame; however a key burden for the ailing department store has been its cumbersome property portfolio.

Many of its leases stretch for 30 years, however there are reports of leases stretching to 2076 and even one that ends in 2083.

A failure to safeguard against uncertain times is something which many businesses would find unthinkable in today’s age. This failure has left Debenhams scrambling to renegotiate the onerous lease terms which it sees as weighing it down.

Though retailers might not like to think about the worst case scenario, it is essential to safeguard your business’s future by allowing room for manoeuvre in the event that profits fall.

Behemoths like Debenhams and House of Fraser have left themselves seeking a retrospective approach to lease negotiations. Too little too late, it seems.

Ansons can assist your business at the point your lease is negotiated to ensure that proper care and consideration is given to what could perhaps be the most important contract your business enters into.

More commonly, tenants are seeking flexibility in their lease terms, with shorter contractual terms, or tenant only break clauses if the comfort of a longer term is required allowing the tenant to terminate the lease prior to the end of the contractual term.

Conditions are almost always attached to the exercise of break clauses (see our article on break clauses for further information in this regard), however we can negotiate and tailor these to ensure they can be effectively exercised if required.

Though ‘upward only’ rent reviews are the norm (meaning that the rent only ever increases in line with what the property might fetch on the open market and will never decrease if this is less than what is currently paid), more thought is being given to up/down rent reviews or annual indexation, which would guarantee increases in line with the Retail Price Index.

Leases are far from straight forward documents, and can stretch on for many pages encompassing volumes of legal jargon. Ansons can help guide you through the process of drafting and agreeing a lease.

Let the plight of Debenhams and House of Fraser be a cautionary tale; be proactive in considering your lease terms, it could be the most important deal your business makes.

If you would like advice in relation to a commercial lease or any of the issues raised in this article, please contact Matthew Easter on 01543 267190 or by email at measter@ansonssolicitors.com