Retail’s recent insolvency activity, both real and threatened, reignites arguments surrounding the legitimacy of the procedure as a means of cutting loose loss-making stores.
The legislation, as currently enacted, allows the well-advised to exploit this as a means to optimise their business.
That doesn’t address the moral argument.
Should an insolvency procedure only be used as a means of last resort? Yes, one would hope so.
Is the relationship between retailers and landlords a partnership? It should be and, in some instances, it is.
However, in many it is confrontational.
When break options in leases appear on the horizon, many occupiers use this as an opportunity to threaten landlords that they will walk away, unless a concession is granted.
“In some instances, the first a landlord hears of an administration can be from the press”
More often than not, when refused or ignored, occupiers stay put anyway, fuelling landlords’ cynicism.
When it comes to issues of occupiers’ hardship or distressed tenants appealing for an adjustment to their rental terms, these aren’t often accompanied with an open-book approach to store performance.
Where more favourable rental terms or other concessions are requested, it is rarely a negotiation where an agreement can be made to share in both the downside and the upside post-recovery.
Approaches are often made with the veiled threat of an insolvency if not complied with.
In some instances, the first a landlord hears of an administration can be from the press.
It might be a utopian dream, but landlords and occupiers need to work to understand each other’s business models better.
Landlords need to look at their occupiers’ businesses, understand the mechanics, what the threats to their success are and then engage with them.
Tenants need to understand that landlords’ holdings are financed based on a stream of rental income. Adjusting this could cause the landlord to default to their lender.
“That is not to say that more effort couldn’t be expended by both sides to develop a greater understanding of what each other wishes to achieve from the store”
Just because a landlord can’t acquiesce to a request for help doesn’t mean they don’t want to.
While debt is involved on both sides of the equation, neither the landlord nor retailer is truly free to have an open negotiation when trade is suffering and relief is sought.
That is not to say that more effort couldn’t be expended by both sides to develop a greater understanding of what each other wishes to achieve from the store.
In the case of Game, landlords and administrators worked together to achieve clarity over rent payment, resulting in positive change.
Is this the opportunity to do the same again and achieve greater clarity over the use of insolvency procedures?