Recent press over shopping centre leases

In the past week or so a debate has been brewing between shopping centre retailers and landlords, fuelled by comments made in the media by Mark McInnes and Solomon Lew of Premier Investments.

McInnes is employing a strategy of closing stores to reduce losses in his ‘ongoing cost-reduction program’. In some cases where Premier Investments have threatened to close stores, landlords have responded by offering rent reductions of up to 30%.

McInnes discusses this strategy here and refers to the “massive arguments” taking place between centre management and retailers.

One commentator says that landlords face the possibility that other retailers might follow Premier’s lead and should be thankful that there have not been more store closures. In the same article, he encourages landlords to “jump at the chance to replace underperforming fashion tenants sooner rather than later”.

Solicitors for both landlords and tenants should consider both the opportunities and the risks that this recent press creates for their clients.

For those interested in following the debate, a summary of recently reported articles follows:

‘Lew all cashed up for bargain hunt’, AFR, 20 September 2011

• Solomen Lew intending to take advantage of poor retail conditions to purchase assets
• Solomen Lew optimistic for sales growth in first half of 2012 compared with 2011

‘Premier warns retail to get worse’, The Australian, 20 September 2011

• 18% decline in profit for 2010-11
• Premier’s strategy of closing stores to reduce losses; ‘ongoing cost-reduction program’
• some store closures have been prevented where shopping centre landlords have offered rent reductions when Premier threatened not to renew their lease

‘McInnes gets his mojo back with ambitious agenda’, The Australian, 20 September 2011

• Solomen Lew waiting for the right acquisition opportunity
• McInnes talks about the “massive arguments” between centre management and retailers
• McInnes discusses strategy of closing stores on expiry of leases
• When threatened with store closures, some landlords are offering rent reductions
• McInnes also suggested that there is the possibility of claw-back by sharing the costs for store refits
• Suggests that retailers only have bargaining power where they are willing to close stores

‘Retailers ‘being gouged’’, The Age, 20 September 2011

• McInnes increasing his rhetoric against shopping centre landlords, threatening landlords with closure and in some cases succeeding in getting rent reduced

‘The making of a real estate monster’, SMH, 21 September 2011

• small retailers at risk
• suggests that retail property owners may be thankful that there haven’t been more store closures
• landlords face the possibility that other retailers might follow Premier’s lead
• says landlords must “jump at the chance to replace underperforming fashion tenants sooner rather than later”