Retail World – FRI leases, the devil’s spawn
We hear on a weekly basis, at the moment, of the demise of retailers with a headline involving House of Fraser, Mothercare, any number of restaurants and most recently Poundworld* availing themselves of CVA’s. The sole reason for this approach allows these ‘mega-retailers’ to excuse themselves of onerous leases.
FRI leases or full repairing and insuring leases are onerous and not fit for purpose in today’s world tenancy agreements. Most commercial tenancies are based on these and are at best inflexible and our statement that “they are not fit for purpose” revolves around the ever-changing, fast-moving commercial environment we exist in today.
So, the ‘mega-retailers’ can avail themselves of the Insolvency Act and the CVA rules to clear and renegotiate their lease. However, SME’s cannot usually take this approach because of the insistence of personal guarantees to support any lease.
If a business therefore struggles, the biggest personal exposure could be the lease of the business premise, be it retail, individual or office in nature.
Typically, a landlord will have funded his property by way of traditional institutional funding linked inextricably to the FRI, upward on review 15+ year lease. To this end, their hands are tied.
However, if a business is struggling and the lease is supported by a personal guarantee then it is vital to engage with professionals and seek advice. As we often say, ‘know the worst and work from there’.
Whilst every case is different, this issue of onerous leases is becoming more prevalent. If you face this dilemma talk to Bell & Company now and call +44 (0) 2895 217 373 for a free consultation. You do not have to face this issue alone.
*STOP PRESS: Poundworld has just entered into administration as of 11 am 11th June 2018.