Friday 15 December 2017

Retailer fury at Cabinet U-turn on rent reviews

Decision on upward-only rents 'will cost jobs'

JEROME REILLY

ONE of the country's largest specialist retailers may have to close nearly a third of its Irish stores in the New Year following the Government's U-turn on upward-only rents.

The Fine Gael/Labour Government's decision to renege on commitments to tackle the two-tier rent system will set off an avalanche of store closures and threatens thousands of jobs in the next few months.

Hundreds of retailers around the country delayed closing down businesses in the expectation that a change in legislation would bring in market rate rents.

Now they say they have no option but to close outlets and cut jobs in locations where rent is too high and landlords, many under pressure from their own bankers, insist on maintaining rents at levels set during the boom.

Minister for Finance Michael Noonan and Minister for Justice Alan Shatter said abolishing existing upward-only rents would not survive a constitutional challenge.

Stunned retailers, who were promised change are aghast at the volte face. They believe Nama "got at" the Cabinet to derail the legislation.

Many potential investors interested in Nama's Irish property had been holding off striking deals fearing leases would be revoked.

Brendan McDonagh, chief executive of Nama, had warned that changes could cut up to 20 per cent off property values -- devaluing the bad bank's property portfolio by about €2bn.

In his Budget speech Mr Noonan promised the publication of guidelines on how Nama -- now the country's biggest landlord -- approves rent reductions for struggling retailers.

David Fitzsimons, chief executive of Retail Excellence Ireland said: "The minister's suggestion that Nama guidelines on commercial rents reductions will improve the lot of retailers is nonsense. If Nama had any intention of engaging with retailers, why are guidelines only being published now? The minister is effectively leaving all tenants in non-Nama properties to the wolves.

"Additionally, private landlord companies and pension funds will be left to sit on their hands and maintain Celtic Tiger era rents. Minister Shatter has lost the respect of Ireland's largest industry -- retail."

Mr Fitzsimons added: "The retail industry has lost 50,000 jobs in the past four years. The continuance of upward only rent reviews will greatly increase this number. The Government has lied to every commercial tenant and retail employee in the country.

"The evidence is clear; landlords have no interest in reducing rents. The last three years have seen average rent reductions of only 3.83 per cent while sales levels fell by 30 per cent."

The Sunday Independent has spoken to three businesses who now say it is inevitable they will close part or all of their operations in 2012. All spoke on an off-the-record basis because they want workers to be the first to learn of job losses and because they fear that speaking out could "spook" both their bankers and their suppliers.

'I took out the lease at the height of the boom... The building I'm in is now valued at €400,000 -- but I am paying nearly €130,000 a year in rent'

The managing director of one major company with outlets throughout Ireland said that eight of their smaller outlets were now in real danger.

"The decision by the Government has changed the landscape. We have cut everything back to the bone with pay cuts and pay freezes. Now it's going to be store closures. We would work on the basis of 10 per cent of turnover apportioned to rent but some of our outlets are up to 17 per cent and in once case 20 per cent. That's unsustainable.

"Smaller landlords will negotiate. We are a good covenant, a good name to have in a location. The bigger guys, the pensions funds and the institutions won't even take phone calls or answer letters. We have eight stores at serious risk with probably 50 people employed," he said.

Another smaller food retailer with two outlets, one owned outright and the other leased, says he will now be forced to close his business. He employs 50 people in rural Ireland.

"I took out the lease at the height of the boom and it had an upward only clause which has come home to roost. The building I'm in is valued at a little over €400,000 and I am paying nearly €130,000 a year in rent. My landlord has difficulties himself and is under pressure. I now have no choice but to close it. My bank have made it clear to me they are not going to leave me on interest only when all my money is going to pay off the landlord's bank. I'm in turmoil. If it closes down, the landlord or the bank is not going to get another tenant. I have personal guarantees which means the premises I own outright will also go because it is a realisable asset and they will come for it."

A third retailer in the leisure sector is battling with state agencies.

"One demanded a rent review. We couldn't agree and it went to arbitration which set a rent rise of nearly 40 per cent. To back up that hike they used the example of another company which had been forced to strike a deal at a similar level. That business went out of business a month after the adjudication," he said. He added that 50 jobs, many part-time, are now under serious threat.

Sunday Independent

Promoted Links

Today's news headlines, directly to your inbox every morning.

Promoted Links

Editor's Choice

Also in Irish News