June 2011: Gilbert Evans’ Landlord & Tenant team has successfully argued that in relation to rentals produced from turnover top up lettings, it is the 80% base rent that is actually paid and not the notional 100% rack rental that should be analysed. This has resulted in substantial savings for our clients. Our rationale is that on a first letting there is no guarantee that the ‘element of turnover top up’ will bridge the gap between the 80% base rental and the 100% rack rental. Consequently, it is an absolute unknown whether any turnover top up rent will actually be paid within the 5 year cycle, if ever.
Using the strength of this argument has led to a number of successes for our retailer clients. The four case studies detailed below show how Gilbert Evans’ negotiation skills and market knowledge have led to substantial cash savings in rent review and lease renewals and at Arbitration.
Rent Review: Next, Southside Shopping Centre, Wandsworth
Lease Renewal: Superdrug, Southside Shopping Centre, Wandsworth
Gilbert Evans was instructed by Next to undertake a rent review and by Superdrug to negotiate a lease renewal for stores in the Southside Shopping Centre, Wandsworth.
The historic Zone A tone in Southside, from 2006 up to early 2009 was £125.00 psf. Gilbert Evans was able to challenge, and subsequently defeat, the landlord’s attempt to maintain that historic tone by analysing the 100% Rack Rents achieved on lettings of turnover leases.
Gilbert Evans was able to settle the Next rent review and we established a substantially reduced Zone A level of £99.60 psf, effective from September 2009. The interim rent and new lease negotiations for Superdrug culminated in agreement on Zone A £83.78 psf, effective from February 2010 and September 2010 respectively, also valued with reference to the analysis of 80% Base Rents, as opposed to the 100% Rack Rents .
In terms of market decline the above demonstrates a 33% fall in the 12 month period from February 2009 to February 2010, broken down as follows:
A 20% fall in the 7 month period from February to September 2009.
A 13% fall in the 4.5 month period from September 2009 to February 2010.
A plateau in values in the 7/8 month period from February to September 2010
Through the force of its argument, Gilbert Evans was able to achieve substantial rental savings for both clients, including the payment of all of their professional fees in respect of the rent review for Next.
Arbitration: Argos, Southside Shopping Centre, Wandsworth
The reasoned Award of Arbitrator G D Finn BSc FRICS MCIArb on the Argos review of Unit 94 in the Southside Shopping Centre stated that it was appropriate to analyse the 80% Base Rent achieved on turnover lettings as the likelihood of those tenants paying any turnover top up was an unknown possibility.
Arbitration: Dixon Sports, Metro Centre, Gateshead
The reasoned Award of Arbitrator PCA Smith on the Dixon Sports review of Unit 1.45A Metro Centre, Gateshead again confirmed there was no certainty as to whether the turnover top up would click in. Following on from this, the Arbitrator accepted the argument put to him that the tenant may never pay a turnover top up rent and therefore the 80% base rent is the only rent that would be paid and therefore analysed.