Why small-business owners should have the same rights as residential tenants
Monday, May 6, 2019/
This year in Australia, 30 Oxfam stores, and hundreds, maybe thousands, of small newsagencies, small fashion stores and giftware shops will close. And over the next three years, will see 30 big-box Big W stores close too.
Widespread retail closures are not just an Australian problem either.
In the US, 4,000 major stores will close in 2019. In the UK, the 200-year-old department store chain Debenhams was handed to its lenders and will see significant store closures. There are even reports of a whole regional shopping mall, located in Scotland, being up for sale with a reserve price of £1 ($1.80)!
We aren’t immune from this global shift.
However, some countries have leasing laws that make it as easy to rent a shop as it is to rent a home, with the contract favouring the individual tenant, not the landlord. As a report by real estate giant JLL reveals, UK retail leases are about 10-years long, but this is falling in the face of major retail store failures.
In Italy, six years is common, and in France, it is generally nine years. However, most importantly, there is an option to break a lease after three and six years respectively.
In Spain, there is no fixed term for tenants, with leases running to lengths agreed to by both parties. In Germany, a maximum of five years is enforced, tenants have break options and turnover is used to determine rent.
In the US, the market is changing too. Even Manhattan now faces significant gaps in retail store sites, which has led to the rise of shorter, flexible, quarter-by-quarter rental terms, enticing new pop-up stores to take the risk.
It’s interesting to note that in Australia, home renters can sign a six- or 12-month tenancy agreement and give one months’ notice before vacating. It’s what has helped people to move between cities for jobs. It’s akin to a view whereby the tenant is labour and the landlord is capital, with Australian residential leases reflecting this balance of power.
Most retail tenants are small-business owners and their natural economic relationship and power is aligned to that of a home renter. So it begs the question, why isn’t the same flexibility and rights afforded to retail tenancies?
In the current climate, I would seriously struggle to recommend a new small business sign a five-year retail lease with CPI increase clauses in the contract. It’s too one-sided in the face of continuing declines in store footfall and physical retail sales. If you sign the contract and don’t pay your rent, the landlord can pursue you and potentially take away your home. There’s zero incentive to start something new.
Maybe the place to start, if we are to rejuvenate the physical retail sector, is to overhaul the laws governing small retail leases. More flexibility, shorter terms and support for the renter may be the incentive that is needed to draw in new small businesses.
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