15 Oct 20 by Lesley Anderson

What’s the future for retail on the high street?

The future for retail has been looking under pressure for some time. Long before anyone had heard of Covid 19 we were aware that our retail high streets have been under huge pressure to change. The contributory causes to the woes of the high street over the years have included the growth of out of town shopping, rents and business rates that have arguably become out of sync with trading levels and of course the unrelenting rise in internet shopping – all of which have been discussed many times – but the period of lockdown earlier this year acted to bring even more pressure on to retailers.

Lockdown was made bearable for many people by the fact that internet shopping remained open for business while the high street was largely a no- go area. This helped cash flow for retailers with a good online presence so while not driving footfall to shops at least it helped sustain businesses. Since restrictions were eased the high street re-opened with social distancing measures and this has meant that shoppers have been able to return where they have felt safe to do so but this return has not been sufficient to stem the distress amongst many shop occupiers.

‘The fact that town centres are going to have to adapt significantly to re- align with demand is even clearer than ever. There is a future for retail  – in spite of current circumstances and looking to the years ahead we can rely on the fact that people generally do want to be sociable and have a sense of belonging and community and our town centres have throughout the ages always been at the centre of this. ‘ states Alan Treloar, Head of Agency for Vickey Holman Property Consultants. ‘Our current experience is that demand for smaller retail units, within the reach of sole local traders, has remained during all but the toughest of the past few months while the demand for larger shops – once the domain of the national chains – has fallen significantly but this was already the trend pre- virus in any case. The pandemic has just made a difficult market for larger retail space even more challenging.

Landlords of larger shop units are now often having to consider making serious compromises to their rental income and other lease terms and take a more collaborative approach with their tenants than ever before. Turnover rents, which for most of us in the South West were something we heard of but never experienced have now become a reality in many situations.’

To create this sense of a place to come together even more is going to need to change, beyond continuing to support retail uses where possible, to bring more people into town centres so we need to see more initiative going in to creating new living and working space above, behind and within the high street. Put simply, the more people living and working in a town centre will lead to more footfall and ultimately customers for the high street business. This will help all towns – not just those that are thought of attractive places to visit in their own right – coastal hot spots for instance.

The future for retail includes finding alternative uses.

‘As well as landlords and retail tenants needing to work together we need to be more open-minded to potential alternative uses for larger retail units when they become vacant and where there is little demand. There is a trend towards occupiers that once only occupied upper floors in our towns coming down to the street and as a result, becoming more accessible to their clientele – and this includes office occupiers, consultants, health practitioners and others. ‘ added Alan. ‘Recent changes to the planning use Classes will help this reshuffle of some occupiers from upper floors and lower profile ground floor space helped now by the fact that retail, professional services, food and drink, offices and light industrial, nurseries and health services and assembly and leisure uses all now fall within a single Use Class – Class E – whereas previously they each had their own use class and in many cases planning permission was required to move from one to another.

We have yet to see the results of this simplification take hold as the change was only made at the start of September but it should see a diversification of users on the high street that had already begun develop over time and we are looking forward to that taking shape. ‘

Of course we can discuss at length the natural desire that people have to use their towns as part of their daily routine and how planning changes will help drive activity but retailers, BID organisations and local authorities also play their part to ensure that their offer is something that the public want but I think that most of these players are already doing a very good job of this as we have seen towns take action to encourage activity with various initiatives from shopping local campaigns, to festivals, branding and other promotions.

Alan Treloar. Head of Agency

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of Commercial Property Terms

Alienation – Normally refers to the transfer of a leasehold interest in property to another party – e.g. the grant or assignment of a lease, or the granting of an underlease (or sublease). Most leases will require the Landlord’s consent to such a transfer and their costs in considering the terms of the assignment or underletting to be covered by the Tenant.

Arbitration – A method of settling disputes by reference to an independent and impartial third party, usually an arbitrator is appointed by the RICS. Arbitration is essentially an adjudication of the arguments of the parties, and as such differs from Independent Expert Determination.

Assignee – A party to whom a lease has been assigned or transferred by the existing Tenant (the assignor).

Assignment – Transfer of a lease from one party to another. Once a lease has been assigned, the assignee becomes responsible to the Landlord for paying the rent and fulfilling the other obligations of the lease.

Assignor – The existing Tenant who is transferring their lease to another party (the assignee).

Assured Shorthold Tenancy (AST) – An AST is the usual form of residential letting if: you are a private Tenant with a private Landlord, the tenancy began on or after 15 January 1989 or the house or flat is let as separate accommodation and is your main home.       A tenancy will not be an AST if: the tenancy began before 15 January 1989, it is a business or holiday let, no rent or a very high rent is charged or if the landlord is a ‘resident landlord’ (e.g. they let out a room within their home).

Authorised Guarantee Agreement (AGA) – Often put in place when a Tenant assigns their lease, this requires the Assignor to sign an agreement meaning if the Assignee fails to meet their obligations under the lease (including payment of rent) then the Landlord will be able to pursue the Assignor.

Break Clause – A clause in the lease giving either or both the Landlord and Tenant the right to terminate the lease in specified circumstances, normally at a given date within the lease, such as the third anniversary of the start of the lease. It is important to diarise the dates for the break clause as notice will have to be given to the other party stating that they wish to operate the break at the correct time. Most break clauses are time sensitive in that if the date is missed, the right to exercise the break will be lost. Break clauses are often also subject to certain conditions such as all payments being up to date and the Tenant providing vacant possession.

Consumer Price Index (RPI) – Rent reviews within leases can be linked to CPI which is a measurement of consumer inflation produced by the UK’s Office for National Statistics having regard to the price level of a basket of household goods and services.

Contracting Out – An agreement between the Landlord and Tenant that the Tenant will have no right to renew the lease at the end of the contractual term and will not have any right to compensation for the same purpose. This might also be referred to as ‘outside the act’. Both parties agree that the security of tenure provisions of Part II of the Landlord and Tenant Act 1954 shall not apply.

Covenant – The word generally has two meanings: First, in the strict legal sense it refers to a clause within the lease requiring the Tenant (or Landlord) to do something or to refrain from doing something (see Restrictive Covenant). Second, it is used to denote the worth of a Tenant and hence the risk of default, which will have a bearing on the value of the lease.

Dilapidations – In simple terms they represent the exit costs for the Tenant at the end of the lease term. The cost of putting the property back into its original pre-let condition.

Energy Performance Certificate (EPC) – a commercial EPC provides an energy rating for the building which is based on the potential energy comsumption. Services such as lighting, heating and insulation are taken into account. The EPC is accompanied by a secondary Recommendation Report that provides recommendations on how the energy performance of the building could be improved.

Forfeiture – Forfeiture of a lease occurs when the Landlord exercises their right to regain possession of a property where there is a breach in a condition of the lease, or a breach of covenant.

Gross Development Value (GDV) – The estimated value that a new development or property would sell for on the open market.

Gross Yield – A measure of the return on an investment before the deduction of costs associated with the property purchase.

Heads of Terms (HOTs) – A document usually prepared by the Agent setting out the rental or sale agreement between the parties. The HOTs are sent to the solicitors to prepare the lease or sales contract.

House in Multiple Occupation (HMO) – A property where at least 3 tenants live with shared toilet, bathroom or kitchen facilities.

Independent Expert Determination – A process in which a neutral, independent third-party acts as an expert to provide a confidential and binding determination of a dispute. Different to Arbitration as the Independent Expert is not confined to the evidence presented by the parties.

International Property Measurement Standards (IPMS) – International standards providing buildings of different use classes to be measured on a like for like basis around the world.

ITZA‘In Terms of Zone A’ a method of measuring and valuing shops of different sizes and layouts based on the amount of window frontage.

Market Rent – The estimated amount for which a property should let for on the date of valuation, between a willing lessor and a willing lessee on appropriate lease terms in an arm’s length transaction after proper marketing, wherein the parties had each acted knowledgeably, prudently and without compulsion.

Market Value – The estimated amount for which an asset should sell for on the date of valuation, between a willing buyer and a willing seller, in an arm’s length transaction after proper marketing, wherein the parties had each acted knowledgeably, prudently and without compulsion.

Minimum Energy Efficiency Standards (MEES) – New legislation from 1st April 2018 meaning that all properties with EPCs rated ‘F’ or ‘G’ need to be brought up to an ‘E’ rating or above before they are able to be let.

MRICS – A Member of the Royal Institution of Chartered Surveyors otherwise known as a Chartered Surveyor.

Net Internal Area (NIA) – The usable area within a building measured to the face of the internal finish of party walls and taking each floor into account. Excluding toilets, lift rooms, stair wells, entrance halls and corridors.

Net Initial Yield (NIY) – A measure of the return on an investment, the net yield takes the actual costs associated with purchasing the property into account.

Option to Purchase – An agreement made between a landlord and tenant that gives the tenant the opportunity to purchase the property. The purchase price can either be agreed in the lease or determined by a valuation or valuations at the time of purchase.

Party Wall – A shared property boundary. It can form part of a building or a garden wall. You must advise your neighbour if you want to build on or at the boundary, if you want to work on the existing party wall or structure or if you want to dig below and near to the foundation level of their property. A party wall surveyor is appointed to work on a party wall and acts independently on behalf of the wall.

Per Square Foot (PSF) – Often a rental rate or price will be applied per sq ft (or per sq metre) of space. A method used for valuing properties.

Rent Passing – The current rent that is being paid.

Retail Price Index (RPI) – Rent reviews within leases can be linked to RPI which is a measurement of consumer inflation produced by the UK’s Office for National Statistics.

Royal Institution of Chartered Surveyors (RICS) – The world’s leading professional body for qualifications and standards in land, property, infrastructure and construction.

Security of Tenure – The statutory right of a tenant to renew the lease at the end of the term. Part II of the Landlord and Tenant Act 1954 gives business tenants security of tenure. However, this can be opted out of, see ‘Contracting Out’.

Service Charge – The costs incurred by the Landlord for upkeep and maintenance to shared parts of the building or estate, which can be charged back to Tenants.

Stamp Duty Land Tax (SDLT) – A tax that is paid when purchasing property or land over a certain price in England and Northern Ireland. The current threshold for SDLT is £150,000 for non-residential land and properties. A tax is also paid when leasing a property for 7 or more years.

Subletting – Where the Tenant lets part or all of the premises to a Sub-Tenant, as permitted by the terms of the lease. It differs from assignment in that the head lessee remains responsible to the Landlord for the payment of rent and fulfilment of other obligations.

Vacant Possession (VP) – In terms of a break clause or the end of a lease, Vacant Possession requires the Tenant to ensure the property is empty on the day of completion or the break date.

Valuation Office Agency (VOA) – Business premises are assessed by the VOA for non-domestic rating purposes and each property is given a Rateable Value. Your local council uses the Rateable Value to calculate how much is paid in business rates, called the Rates Payable.