Christmas, at least in the eyes of retailers and their landlords, starts early in the year. With the best laid plans all reaching their apex in the final few weeks before Christmas Boodle Hatfield’s Karen Mason offers 12 seasonal reminders and tips for retail landlords.
- Short Term lets - Christmas is the busy time for short term lets. Certain retailers only enter the market at this time of year and their requirement for space can be urgent for a limited period of time 10-12 weeks. The danger with these arrangements is that the urgency can sometimes lead to short cuts, or the belief that as they are only short term they do not have to be documented as long as the cash is collected. Landlords should take care. The arrangements still need to be documented to ensure that they can be policed, and that vacant possession can be obtained when they come to an end.
- December quarter day - the December quarter day falls on Christmas day and any events which are due to take place on the December quarter day will need to be sorted before the holiday period. This may mean sorting out lease terminations or break notices well before the Christmas break. In addition, a lot of service charge years come to an end on 31 December. Budgets for the new service charge year will have to be circulated well before expiry to make sure there is no break in advance payments. Also, if tenants are on turnover rents, the December quarter's figures are usually key figures and may also be a trigger date for the annual reconciliation of turnover.
- Promotions - the Christmas period is always a key time for pilot scheme promotions. I remember visiting one centre just before Christmas and finding a large area of the mall covered in sofas. The centre manager was very pleased with himself for securing this short term Christmas let, but did not stop to consider that area of the mall formed part of an exclusion zone for the anchor tenant. Luckily this was picked up early and we were able to rectify the position before the anchor tenant noticed. The location of the centre Christmas tree can also cause issues to exclusion zones, make sure that if a large Christmas tree is going to be erected make sure it does not also infringe on exclusion zones.
- Trading windows - Christmas is an important trading time for most tenants. It is reputed that many tenants make 80% of their profit during this time. Many leases will have restrictions prohibiting landlords from erecting scaffolding or carrying out any works to the mall or service yards during this period. Also, if you are trying to get new tenant in before Christmas most retailers will not want to take access after mid November and if any date agreed with the tenant is missed, the access date will usually then be postponed until well into the New Year. Make sure all your team are aware of any special arrangements agreed so that you can deliver the unit on time.
- Tenant with trading difficulties - throughout the year good landlords will always know which tenants are trading with financial difficulties. The Centre for Retail Research confirmed in August 2015 that the 12 months of 2014 have been the best for retailers since 2010. However, Christmas trading figures are often key indicators for banks and other funders, so it is important for landlords to keep an eye on key tenants who may be experiencing difficulties. Often, the September and December's quarter rent may be delayed or not paid with a promise of payment early in the New Year. From the landlord's point of view agreement to monthly rent, on a short term basis, may be preferable to leaving the whole quarter's rent unpaid. If any concession is agreed make sure it is documented.
- Trading hours - Christmas is always a time of extended trading hours. Some retailers will have "keep open" clauses and will be contractually obliged to trade during the trading hours of the centre. In agreeing extended trading hours, beyond the normal trading hours, landlords need to be sure that full recovery of expenses will be made through the service charge and that any extended hours do not result in a service charge shortfall. Once trading hours are agreed these should be published and advertised to tenants and the general public. The landlord should also consider whether any new regulations are required to regulate the basis of extended trading. The extent of any extended trading hours may also be prescribed by planning consent, make sure the relevant planning consent is checked.
- Servicing - With tenants wanting to optimise trading during this period there will also be additional requirements for extended servicing to meet demand. Before extensions are agreed the landlord should revisit any planning restrictions as planning consents for retail units and centres will often restrict the hours during which servicing can be carried out. There may also be restrictions on the size of vehicles if servicing has to come through a residential area, so do not assume that all servicing requirements can be automatically met. Also see what impact, if any, this will have on service charge payments and make sure any additional expenditure is agreed and included in the relevant demand.
- Over spending - Christmas is often a time for events in retail locations, whether this is carol singers, an ice rink for winter skaters or choral music. All great ideas, but all will have a cost attached to them. Most centres will have an agreed marketing budget for the whole year, yet unfortunately, for a lot of centres Christmas comes at the end of the service charge year. It is therefore important to ensure that Christmas ideas are within budget and can be recovered through the service charge.
- Maintenance - increased footfall will always put pressure on maintenance. It is imperative that business continues uninterrupted. All maintenance checks will need to be monitored and chased through early to ensure there is no disturbance to trade. This should include enhanced security measures to deal with anti-social behaviour which tends to be more prevalent at this time. Additional training may be required for the management team to ensure these situations are dealt with sympathetically, in line with the landlord's branding. Also, do not forget routine maintenance that will still need to happen. Often at acute periods of pressure it is the routine items that get forgotten and break the system.
- Turnover Rents - Christmas trading is often a make or break event for turnover rent trading arrangements. Landlords need to make sure that they are up to speed with all of their turnover arrangements. Many of my landlords will have turnover spreadsheets running throughout the year with predictions showing the level of trading required to hit agreed thresholds. These also serve as an early warning sign of trading not being at the required level. Christmas is also a big time for returns and refunds. Make sure that these are dealt with strictly in accordance with the terms of the lease. Landlords should scrutinise returns policies to ensure that the particular premises are not being used for a disproportionate number of returns or refunds. The interaction with online sales needs to be examined to ensure that online sales generated by a particular store are counted. I recently went into a branch of a major retailer to buy a coat I saw in that shop window. It was not in stock, so an online order was placed for the item which was delivered to the store and collected by me the next day. Would that sale be captured by your turnover lease? It certainly should be, and do not forget Click and collect.
- New offerings - Christmas is an ideal time to try out new offerings, as if a new offering does not work at Christmas the chances are it will not work at all. However, new offerings still need to be properly documented to make sure that the investment value of the property is protected and also to ensure vacant possession can be obtained when required by the landlord. Even well disciplined landlords are often tempted by short term licences at Christmas. However, short term arrangements not properly documented, can quickly become New Year's headaches if things do not go to plan. If a new proposal works better than anticipated the tenant may want to stay on and may be able to dictate terms or get better terms. On one of my retail outlets a Christmas coffee van has now resulted in an additional unit being constructed by the landlord let to a high street coffee shop.
- Outdoor space - think outside the box. Outdoor space is increasingly being used for paid attractions such as outdoor cinemas, ice rinks, craft fairs, traditional farmers markets or Christmas markets, even extra event parking. All may be possible, but you will need to check planning, title and lease restrictions to ensure none of these restrictions are infringed by the proposed use. The next hurdle to consider is whether any additional licences or approvals are required and the cost and timings of these. Title restrictions may mean that the area has to be kept as an open space, but even if this is the case, there might be exemptions for temporary arrangements or arrangement within certain parameters.
Seasonal trading like all trading requires good discipline and methodical planning.