While as property advisers we have been able to service clients throughout the Covid-19 pandemic, we have perhaps unsurprisingly found ourselves dealing with fewer new lettings with the focus of many of our landlord clients instead shifting towards managing existing tenants, including lease regears.
Between March and July 2020, Savills out-of-town retail team negotiated and concluded a large number of regears on behalf of both landlords and tenants, with the total up 178 per cent on the same period last year.
A lease regear is used to vary aspects of a lease during the term. Commonly, regears are tied to lease events such as break options or renewals. However, with the ongoing impact of Covid-19, they have increasingly been used as a tool to help alleviate the financial strains brought on as a result of the pandemic. In this case, regears have delivered occupational cost savings for tenants while delivering increases in value for landlords.
Retailers deemed ‘non-essential’ were forced to close during the lockdown and landlords and occupiers are still suffering the consequences of this. Out-of-town retail has been more resilient than the rest of the sector, benefitting from a higher proportion of essential retailers, being easily accessible by car and generally having more spacious stores helping to maintain social distancing.
By the end of August 2020, footfall figures in out-of-town retail had returned to within 10.4 per cent of pre-Covid-19 levels at the start of 2020, compared with 33.7 per cent on the high street and 31.2 per cent in shopping centres. However, we have still seen a huge number of occupiers having to look at their existing out of town estate and undertake regears where needed.
The Coronavirus Act 2020 moratorium on forfeiture has given tenants an element of protection by prohibiting the forfeiture of leases for non-payment of rent for a three month period. While this has caused issues for a large number of landlords, it has given occupiers a window of opportunity to enter into discussions with their landlords on regears, in some cases securing the future of their businesses.
The government moratorium may appear to side with tenants in the short term but regears need to be beneficial for both parties. In order to ease cash flow, some regears agreed during the period have granted occupiers an additional rent free period, in exchange for variations such as removing break options or pushing out lease expiries. Others have sought to re-negotiate rents to more sustainable levels, or in some cases to a different method of calculation such as turnover linked rents.
There has been a lot more dialogue between landlords, tenants and their agents than ever before regarding existing leases and we are starting to see more openness and transparency. It will be imperative that this communication continues in order to continue to work through the current pandemic and other challenges in the future.
Further information
.jpg)
.jpg)
