Swedish fashion retailer H&M is understood to have drawn up a list of tough demands on UK landlords which has sent ripples through the retail property sector.
According to The Times, H&M is demanding new clauses similar to those it has on the continent because the executive team in Sweden believes British shopping centres are badly managed.
One of the retailer’s demands includes 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 turnover-linked “top-up” fee.
The retailer is also asking for another clause which stipulates if the vacancy rate of a centre remains at 15% or rises over a set period, it can reduce its rent by even more, despite its turnover staying the same or increasing. Ultimately H&M could then terminate the lease, said The Times.
H&M wants UK landlords to form much closer relationships with the retailer, to make sure both sides successfully manage a centre.
In other countries it operates in, such as France, Germany and Spain as well as Asia, it secures leases with such clauses in them.
But the demands are believed to be unpopular with the British property industry.
A large fund manager and a developer who spoke to the paper said H&M had asked for these terms recently but both had refused to agree to them.
The developer said: “Why should a landlord be held responsible for the trading fortunes of every single retailer in a centre? Retailers going out of business in a centre is something that happens, and landlords always work hard to fill these stores quickly.
“But if retailers are allowed to vary their rents like this, there will be no cashflow certainty. This could also make it very hard to secure development finance when building a new centre.
“When you consider how developers often have to pay millions through premiuims and contributions to fit-out costs to get these retailers to anchor schemes in the first place, it does not seem right.”
A spokesman for H&M said: “As a general rule, H&M never shares information on agreements between us and a landlord or partner; we wouldn’t consider it good business ethics.
“We always strive to create mutually fair deals reflecting market conditions adding 300 new stores this year, the H&M group is growing rapidly and we see this as an indication that our lease structure works for both us and our partners.”