A rebellion is occurring amongst retailers. They have had enough. They are being stymied by a tradition that dates back to the Middle Ages. If their rebellion is a success, its significance will be far reaching. Maybe at last we are seeing the long needed change in attitude to property ownership – a move away from the dominance of those who create little of the country’s wealth, to those who really are wealth creators.
In the UK, the price of land seems everything. When you buy a property, it is the land of course you are paying for. The cost of build is usually quite small compared to the total price. But, in Blighty land is expensive, very expensive. This has created wealth for land owners. It has perhaps led to higher retail prices in the UK relative to abroad, and has turned would be entrepreneurs, real wealth creators, into buy-to-let speculators instead.
Back in Medieval times, landlords would collect their rent from tenants four times a year, on religious festivals. As the British Retail Consortium said last week, paying rent quarterly in advance is “an anachronism dating back hundreds of years to the days when horseback was the fastest means of communications.”
We all know commercial property is expensive. The commercial property market is not the same thing as the housing market of course, but in recent years the two have moved in tandem. If anything, madness seemed even more endemic in the booming commercial property market than in the housing market.
But, right now retailers are in trouble, and they are turning on their landlords.
Now Hermes, the pension fund manager, has agreed to substitute ”monthly in advance” terms for the traditional “quarterly” terms, on existing leases.
Apparently, monthly terms have already become the norm on new and re-signed leases. But Hermes is the first major landlord to agree to renegotiate existing leases.
Quarterly rents are traditionally paid on the four quarter days each year. The most recent payment day was yesterday, Monday 29 September 2008.
British Retail Consortium Director General, Stephen Robertson said, “ A number of retailers have gone to the wall this year. Others are clearly struggling. Most are battling a range of rising costs in order to keep shop prices and overall inflation down.
“The dam has burst. Hermes’ move shows there is no principled or practical reason why landlords cannot offer this flexibility. I urge all landlords to follow Hermes’ example. By agreeing to a fairer rents regime, landlords will be contributing to the retail prosperity on which they themselves depend.”
But maybe the change is more significant that that. At last, the focus of power has shifted from the landlord to the tenant.
Ultimately commercial rents need to fall. And just like falling house prices, when they do fall to a realistic level, the UK will be a more dynamic place, where reward is what you get for creating something, rather than for just owning land.
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