Blog 30.01.19

Interview with Rachael Reynolds, Legal Director and Real Estate lawyer at DAC Beachcroft

This month we caught up with Rachael Reynolds, Legal Director and Real Estate Lawyer at DAC Beachcroft to discuss security issues in retail and the real estate left empty by insolvencies.

Tell us about your role as Legal Director and real estate lawyer at DAC Beachcroft? 

I've been at DAC Beachcroft for over 10 years now and specialise in real estate dispute resolution. I help landlords and developers with all types of contentious asset management issues, from securing possession to complex development disputes. A significant proportion of our clients operate in the retail sector and the changing landscape there has meant that tenant insolvency issues are a particular concern for clients.

Many have committed themselves to leases of stores which are now underperforming, and find it difficult to absorb the ongoing costs – not only rent but increasing business rates, upkeep costs and staff wages.

For retail businesses 2018 has been consistently challenging; Christmas trading highlighted the winners and losers. How much do you think real estate issues have contributed to retail challenges?

Real estate issues definitely raise challenges for retailers and I think we'll see that continue. The retail sector is going through huge changes and a lot of retailers don't have the flexibility in their property contracts to adapt. Many have committed themselves to leases of stores which are now underperforming, and find it difficult to absorb the ongoing costs – not only rent but increasing business rates, upkeep costs and staff wages.

HMV and Patisserie Valerie are among the companies to go into administration since Christmas. What steps would a company go through before going into administration?  

Administration is intended to give a company breathing space to allow for the possibility of a rescue, or at least a better outcome for creditors than would be achieved if the company were to go into liquidation. The company would need to show that these purposes are likely to be achieved before appointing an administrator. In practice, the main objective is usually a rescue of the underlying business rather than of the company itself. 

When the tenant and landlord can’t come to an agreement and the company goes into administration, what safety measures need to be put into place to secure the empty asset? 

From a practical perspective it's important to ensure that the unit is secure and protected as far as possible against the risk of damage being caused to it or unauthorised persons going into occupation. This will be the administrator's responsibility for as long as the lease continues but the landlord may seek agreement to get involved if they want to make sure that their interest is protected.

What in your experience can be the benefits for either landlord, tenant or community to securing unoccupied retail sites?

If the unit isn't being traded, the landlord is likely to want to re-let it in due course and will want to protect the unit from deterioration in the meantime. An empty unit that is being secured and looked after also creates a better impression within a retail scheme than one which has been obviously abandoned.  

Are there any common misconceptions in the law governing commercial real estate and unoccupied sites? 

Landlords are often wary of taking steps to secure empty units while leases are still running because of the risk that they may be deemed to have terminated the lease by their actions, rendering them liable for rates and other costs. This is a valid concern but it is usually possible to agree with the outgoing tenant or administrator that the landlord may take such steps without affecting the lease. It is normally in all parties' interest that the unit is taken care of and re-let as soon as possible. 

In 2012 the law changed to make squatting of residential property a crime. Has there been a change in criminal activity at commercial property owned or managed by your clients since then? 

Empty commercial property can be an easy target for squatters and our clients do face this issue. The police will usually only take action if the squatters commit other crimes when entering or staying in the premises and so it is up to the client to go through the process of removing them once they gain entry. 

I think we will see the use of insolvency processes such as administrations, pre-packs and CVAs increase even further as the stigma attached to these processes falls away.

What in your view are the coming challenges facing commercial property owners and managers over the next months and years?

I think we will see the use of insolvency processes such as administrations, pre-packs and CVAs increase even further as the stigma attached to these processes falls away. The use of the CVA process by household names such as House of Fraser, Homebase and New Look (to name but a few) has brought it very much into the mainstream and we are likely to see many more attempts to restructure store portfolios by this method. This will create significant uncertainty for property owners.

In short, could you tell us what CVAs are? 

CVAs (Company Voluntary Arrangements) are agreements between a company and its creditors in relation to how the company's liabilities may be dealt with during a specified period. Their main purpose is to compromise outstanding debts.

Are some retailers taking advantage of the CVA process?

Some landlords would argue that they are. High profile CVAs (for example House of Fraser in June last year) have drawn criticism on the basis that they are being used to cut property costs for companies in difficulties without those companies having to address the underlying causes of their failing business.  

Do you see any emerging trends in property that may have a significant impact on any of the above issues?

Local councils are becoming more active in acquiring shopping centres, taking the view that they have a responsibility to rejuvenate local high streets and prevent decline. In the private sector, landlords are looking to refocus shopping centres to bring in more leisure operators, more independent retailers and smaller convenience stores. It's not all doom and gloom, but there is a need for both landlords and operators to innovate and be flexible. 

Vigilance thanks Rachael and her team at DAC Beachcroft for taking the time to share her expertise with us. For more information please visit www.dacbeachcroft.com.

Vigilance works across public, private and commercial sectors. Please get in touch regarding your security requirements, including unoccupied sites, so we can create a bespoke security package based on individual assessments of your needs. Call us on 020 3416 5340.