Lindsey Bayley:
Retailer therapy

The credit crunch and subsequent economic downturn is affecting us all. Higher food prices and fuel bills, coupled with dearer mortgages for many, has dented consumer confidence and although High Street sales have remained robust, major retailers are warning of much leaner times ahead.

Reduced consumer income will lead to reduced retailer profits and further corporate casualties - whose number already include Ethel Austin, Mk One and Dolcis; all well-known names.

More companies are likely to go the same way before the economy stabilises and many are already planning to downsize to help them cope. Currys, B&Q and Homebase have recently announced plans to reduce their rental costs by exiting stores in unprofitable locations.

Of course, downsizing isn't without its problems, and it's unlikely that a lease agreement will be coming to an end just as the tenant wants to exit it. Many lease contracts have stringent conditions regarding early redemption and could require large payments to be made to the landlord in return for termination.

In the rush to be rid of a loss-making store, or to end a contract with large rental payments, the risk is that negotiations will be hurried and that lease termination payments will be paid without any real investigation into ways to make the deal more tax efficient. Agreement to structure the payment such that it is more tax efficient for the landlord could result in a stronger negotiating position on other matters, or possibly a reduction in the amount of repayment.

Exiting onerous leases can be a part of the plan and we commonly support clients with negotiations and with tax-efficient structuring for landlord and tenant.

But there are two sides to any story. Downsizing by retailers obviously causes a problem for landlords, as more companies moving away from the High Street means there is greater competition for tenants.

A walk through any town centre will quickly reveal vacant shops, and the recent withdrawal of empty property relief for business rates isn't the only cost that will concern landlords.

For example, despite 90% of the first phase of the new Liverpool One centre being let, much of the commentary about its recent opening concerned the amount of empty space. Also, as only half of the space in the centre has been taken by names that are new to the area, there must be worries that those whose stores are replicated elsewhere in the city centre will start to leave and concentrate on their new stores in the Liverpool One centre.

Finding workable incentives for tenants is even more important in the current economic climate, and the decision over the types of incentives to be offered shouldn't be hurried, as the deal needs to bring benefits to both sides.