Friday 23 February 2018

Row erupts between Roche family and Debenhams over restructuring

A Debenhams worker adjusts sale signs on Henry Street, Dublin, as retailers open their doors early to a relatively slow start on Black Friday. Brian Lawless/PA Wire
A Debenhams worker adjusts sale signs on Henry Street, Dublin, as retailers open their doors early to a relatively slow start on Black Friday. Brian Lawless/PA Wire
Fond memories: Christmas wouldn't be Christmas without a trip to Roches Stores for the finest culinary delights business desk

Landlords are lining up for a "battle royale" over lease guarantees provided by UK retail giant Debenhams following a decision by its Irish arm to enter into examinership.

The Roche family, that once owned Roches stores, are landlords at a number of Debenhams' outlets.

Details of the clash have emerged in court documents associated with the examinership process.

The media-shy Roches still own properties on Henry Street, Dublin and St Patrick's Street, Cork where upward only rent agreements are in place.

Family member Richard Roche has accused Debenhams of filing a "tainted" examinership application.

Debenhams rejected the accusation and accused him of looking for commercially sensitive information, according to reports in the Irish Times.

The family business started with the opening of a shop in Cork in 1900.

Debenhams Retail Holdings (Ireland) Limited has placed its 11 stores into examinership, with some 2,265 jobs, including 500 concession staff, at risk.

Read more: Roches Stores v Debenhams: So who are the Roche family?

The company applied for court protection after its UK parent Debenhams plc, to whom it owes €46m, withdrew financial support.

Debenhams Ireland cited its annual €36m payroll costs and €25m upward-only rent roll as the key reasons why the company is no longer viable.

It said that attempts to reduce rents that "substantially exceed" market rates have been unsuccessful due to the upward-only rent review clauses in the relevant leases, most of which have another 15 years to run before they expire.

Debenhams, which says it is conscious of the public controversy that arose following the sale of Clerys - including the effects on its staff, concessionaires and customers - wants to renegotiate its rents on "commercially feasible terms".

However, investor/owners including New York-based fund Marathon Asset Management - which own several Debenhams stores in Ireland - are set to oppose any repudiation of the guarantees the UK parent company provided on Debenhams Ireland's leases.

As well as Marathon, Debenhams is the anchor tenant in the Frascati Shopping Centre in Blackrock owned by US investment fund Invesco.

Failing a successful renegotiation of rents during the course of the examinership, the High Court has the power to repudiate Debenhams' leases.

The guarantees by the parent company cannot be repudiated.

However, following a major decision of the High Court in 2012, if the guarantor agrees to enter into a new lease, the rent can be reviewed upwards or downwards (or stay the same).

In a case involving Reox Holdings Ltd, the High Court ruled that the replacement lease enjoys the protection of a statutory ban on upward-only rent reviews which came into effect five years ago.

The ruling places tenants and their backers in a stronger position to negotiate rent reviews, even if the original lease predated the Section 132 upward-only ban.

The stage is now set for an intense rent renegotiation battle which could affect the proceeds of the sale of the Blanchardstown Centre in Dublin, Ireland's largest shopping centre where Debenhams is the anchor tenant.

Green Property is in the course of selling Blanchardstown to Blackstone, the world's largest property investor, in a deal worth nearly €1bn.

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