H&M: Brave New World?
We have all been involved in lease negotiations where there are differences of opinion as to what is or is not institutionally acceptable.
That phrase is becoming more contentious as the market remains difficult. The balance of power has definitely tilted towards the tenant and there is much speculation as to when market conditions will improve.
There has been quite a bit in the press about H&M's demands for lease provisions which include reducing the amount of rent it pays if 15% of a shopping centre falls vacant. If this were to happen H&M would immediately cease paying the base rent and would revert to simply paying the landlord the "top-up" fee. Further, if the vacancy rate remains at 15% or rises then it can reduce its rent even more and could ultimately terminate the lease.
Apparently, H&M have similar provisions in leases for its stores in France, Germany and Spain and wants UK landlords to have closer relationships with the retailer and believes such provisions will mean landlords will be incentivised to manage shopping centres better (it is questionable however if there is anything individual landlords could have done to stop Comet going bust though).
These provisions are certainly controversial. It is questionable whether funders would accept them let alone landlords. However, it may well be that in some instances having such innovative provisions in a lease is a price worth paying to get occupiers such as H&M into a scheme. It is suggested that to counter-balance such tenant friendly clauses a landlord should be entitled to higher than market rent while the centre is occupied. The rent review clauses will also need to be carefully drafted and funders' input sought. Could this trigger a new landlord/tenant relationship which is part of what H&M is trying to achieve?