Boarded-up premises are a blight on any shopping centre, causing loss to landlords and other tenants alike, and that is why many leases include covenants which require retail units to be kept open. One such clause was considered in a case concerning a shop left empty due to the tenant’s insolvency.
The shop was the fourth largest unit in a successful shopping mall. The 125-year lease of the premises had been purchased by a national retailer in 1998 for a £7,500,000 premium. After the retailer entered administration, however, the premises were boarded up and had been empty for almost three years.
The lease contained a covenant which required the tenant to keep the shop open to the public during stipulated hours, seven days a week. There was no dispute that the retailer was in breach of that clause and, in seeking forfeiture of the lease and possession of the premises, the landlord pointed out that the empty shop had led to decreased footfall across the mall, to the disadvantage of other tenants.
The retailer, together with a lender who had advanced significant sums which were secured on the lease prior to the shop’s closure, sought relief from forfeiture. They argued that the lease, which had more than 100 years to run, remained a substantial asset and that forfeiture would result in the landlord receiving a windfall.
In ruling on the matter, a judge noted that the retailer’s breach of covenant arose from its insolvency and was not wilful. Despite the poor state of the retail market and the restrictive terms of the lease, which included no tenant break clause, the lease still had a value of over £1 million and there was a real prospect of the tenant finding another retailer who would take an assignment of the premises. If the lease were forfeited, the lender would also be deprived of its security.
The judge put into the balance the ongoing harm being suffered by the landlord and other tenants due to the retailer’s breach of covenant. In granting conditional relief from forfeiture, however, he gave the retailer three months to find a buyer for the lease.
