Christmas is a massively significant time for retailers - some make 80% of their profits during the Christmas season. Christmas is also the season of goodwill. So how can retail landlords and tenants look to give each other a Happy Christmas?
Do they know it's Christmas?
Christmas Day falls on a Sunday this year. Commentators think that, as many people will be driving home for Christmas on the 24th, Friday 23 December might be the busiest day for retailers. Landlords and tenants should make special provision to make the Christmas rush flow as smoothly as possible, in order to keep customers happy. This might require them to work collaboratively on:
- making space for additional customer collection points, especially given the ever increasing proportion of orders that will be made online and then collected in store;
- maximising the amount of car parking available, including parking wardens to keep traffic moving; and
- making sure all communal space that is likely to become congested e.g. escalators are policed, with measures in place to alter the flow of traffic where required.
It will be critical for tenants that they can trade without interruption at this time of year. Non-essential maintenance should be postponed until the New Year where possible. Any works that do need to be carried out should be carried out sympathetically so as to reduce the impact on trade. Landlords should bear in mind too that some leases may contain express provisions prohibiting types of works in December or requiring the landlord to put mitigation measures in place e.g. branded signage on any scaffolding.
Here comes Santa Clause
Where a landlord enters into an agreement for lease with a prospective retail tenant the agreement may contain a "Santa Clause" that provides that the tenant will not be required to complete the new lease between mid-November and mid-January. This is so that the tenant can focus its efforts on Christmas retailing at its existing stores, rather than dealing with new premises at an already busy time.
Landlords should make sure that they are aware of any Santa Clauses and focus or divert their efforts accordingly.
'Tis the Season to be Jolly
Landlords can look to maximise seasonal income and jolly up the seasonal retail offering through the granting of pop-up leases and making use of common or external space e.g. through seasonal promotion stands, Christmas markets and even ice rinks.
Empty units cost money, particularly given liability for non domestic business rates after three months’ vacancy. A tenant, even for a short period of time over Christmas, will generate income for the landlord. And if all goes well, a pop-up retailer may decide to take a much longer lease after testing the water.
Christmas Day is one of the traditional quarter days on which rents fall due. Landlords should send out demands in plenty of time and tenants should set up their payments, as staff may be away from the office between Christmas and New Year.
Christmas is also a crucial time for retailers, some of whom might be on turnover leases. Turnover reports for tenants on turnover leases will quickly show who has had a blue Christmas. Landlords should be watchful for struggling tenants and prepare a strategy in the event of those tenants folding in the New Year.
In an omnichannel retail market, there is a big debate whether turnover leases can still accurately record tenants' performance. Care should be taken, for example, over how online orders collected or refunded in store are treated.
Despite the current economic uncertainty, retailers are still forecasting a year on year retail increase of around 1.5% (Source: Verdict Retail, 25 October 2016). However, tenants might also want to consider any proposals they wish to make to the landlord if trading has not been as busy as hoped.
Deck the halls with boughs of holly
We all enjoy seeing the Christmas lights go up and these can serve to draw in footfall. But before splashing out on the latest Christmas decorations and attractions landlords should check carefully whether the costs of these are recoverable from tenants through the service charge. Whilst most sophisticated service charge budgets make provision for marketing and promotions, some tenants might enjoy service charge caps or exclusions. Depending on the nature of the scheme, leases may only allow for replacement decorations where existing items are beyond economic repair.
Landlords should check that they are not going to end up bearing a shortfall and tenants should monitor carefully expenditure on seasonal decorations and consider whether they are money well spent.