With consumer spending down, landlords of shopping centres are putting more energy into, and investing more money in promotional activities to encourage shoppers to their centres. Steps taken by landlords may include displaying festive decorations, advertising on local radio stations and providing entertainments in the centre itself. This is all designed to attract new customers and to encourage existing customers to stay longer and ultimately spend more money.
With tenants feeling the pinch, extra care needs to be taken to ensure that the service charge provisions are drafted in such a way that any promotional costs incurred by the landlord can be passed back to the tenant. If not, the landlord will end up out of pocket and bearing the costs.
In Boots UK Limited v Trafford Centre Limited,1 a dispute arose in Manchester’s Trafford Centre. The lease granted Boots a term in a retail unit and provided specifically for Boots to pay to the landlord a service charge. It also stated that the landlord would bear half the cost of “promotion” in any service charge period. That term was defined in the lease as “advertising and other forms of promotion of the centre intended to bring additional custom to the centre”.
The landlord provided four things which Boots, but not the landlord, considered to be promotion: Christmas decorations, entertainments such as the provision of jazz bands, a Santa’s Grotto and a large television screen displaying information about the centre and advertising from retailers at the centre and external organisations. If Boots was right in its interpretation, that the items in question were promotion costs and it would have been entitled to a refund of several hundred thousand pounds from the landlord.
Boots submitted that those items were intended to bring additional custom to the centre, and asserted that they were, therefore, a form of promotion. The landlord argued that a promotion could occur only where the advertising or promotion was outside the centre, and it had to be something unusual and irregular as to occurrence.
The Court said that there was no hard and fast rule regarding the meaning of “promotion”. An external location, unusualness and irregularity were features that would often be found in promotion, but those features were not essential in all cases. The main test was whether the acts promoted the centre or whether they were simply for the benefit of the centre. A Santa’s Grotto, for example, is likely to be for the benefit of a centre rather than promoting it. The large television screen, however, displaying information about the centre and advertising from retailers at the centre and external organisations, was likely to be a promotion.
The wording of the lease is key and any landlord should examine very carefully the service charge provisions before spending significant sums promoting the centre, or indeed on arranging entertainments in the centre. Tenants, as shown by the Boots case, are clearly willing to challenge service charge claims and it may be that any entertainments arranged by the landlord will be at its own cost.
Many leases, particularly older ones, may be silent regarding promotional activities. Landlords are trying to pass promotion and entertainment costs back to the tenants through general sweeper clauses in leases.
The wording of such a clause is along the lines of “the landlord may recover through the service charge provisions the cost of any other services which the landlord in its reasonable discretion shall provide for the benefit of the centre”. Whilst again there is no hard and fast rule regarding this, and each case will turn on its own specific wording, our experience is that Courts can be reluctant to allow landlords to recover promotional and entertainment charges under such clauses.
1 Boots UK LTD v Trafford Centre LTD  EWHC 3372 (Ch)