Case study
Surplus Property Liability
Our client is a national brand with in excess of 2,700 branches nationwide.
The challenge
Smith Price RRG are retained to deal with the disposal of all surplus lease liabilities (ie. closed shops) inside the M25 and the South East. Typically, we deal with 5-10 disposals a year for them.
In this instance, we were instructed to dispose of an existing lease with c. two years remaining in Sutton High Street.
The issue with such a short lease term is that very rarely can a quality occupier take an assignment as the residual term is too short to amortise their ingoing costs (fitout, etc). These 'fag-end' leases are also notorious for having potential hidden liabilities in terms of dilapidations and reinstatement.
Our review of the lease further confirmed that a sub-letting was only possible on an 'Outside the Act' basis – which, on a short term, is simply too risky for the bulk of applicants.
Additionally, our client has a strong preference to surrender wherever possible and extinguish all current and future liabilities, rather than have to make any ongoing provisions for it.
Timing wise, we were instructed to bring this to the market when economic conditions and occupier sentiment were weak – meaning deflated occupier demand and opportunistic enquiries (bottom feeding) were rife.
Given the landlord had c. two years left of income from a substantial covenant, they were not motivated to do anything and did not want to take an unconditional surrender and attempt to re-let in a weak market, when they had the opportunity to bide their time and wait.
The results
Through marketing, we received dozens of enquiries from interested parties – none of whom the landlord was interested in due to lack of covenant / quality of fitout, etc.
Due to our 'market knowledge', we did however know that due to Covid, Hays Travel (who had saved some of the Thomas Cook branches) had been forced to close their store in the locale.
As such, and given the resurgence in travel demand at the time, SPRRG contacted Hays Travel and worked up their interest on a new lease basis. Through perseverance we eventually persuaded the landlord it was in their best interest to not continue to hold out for their aspirations of a huge payout on dilapidations and to pursue a mutually satisfactory surrender and new lease.
As such, we secured our client a favourable release from their residual lease liability and the landlord a new occupier on better than market terms to a great covenant.
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