Now is the winter of our discontent
Published: 07 February, 2009
The landmark case between Boots and the Trafford Centre has raised eyebrows – and questions. Hannah Prevett investigates
As retailers find themselves in the grip of the worst recession since 1980, every penny counts. So when Boots objected to the amount of service charge it was paying for Christmas decorations it took the Trafford Centre to court: and lost. This case set a precedent; as retailers continue to limp through the downturn whose responsibility should it be to pay for Christmas displays? Should it be entirely the responsibility of retailers or should shopping centres be forced to chip in?
The outcome of the case has reverberated around the shopping centre industry. Boots may have lost but it highlights how problematic the grey area of service charges can be. Boots said the cost of the grotto, the Skywall, Christmas decorations and entertainment at the centre should be split 50/50 between the landlord, Peel Holdings, and the tenants as it was promotion. However, Mr Justice Morgan disagreed and found in favour of the landlord on all four counts and ordered Boots to pay both sides’costs which could run into six figures.
In a statement released to Shopping Centre Boots said it felt “there was an ambiguity in the terms of the lease between the service charge and promotions clauses in our contract with The Trafford Centre” and as a result has “asked the Court to clarify this.” The pharmacy didn’t rule out further legal action saying “we are currently reviewing the judgement.”
This may be the first high profile case of its kind but it is unlikely to be the last. But there can be no ‘one size fits all approach’ – every case should be considered on an individual basis, says Wendy Ford, managing director of Springfield Decorations and Display. “Shopping centres are owned in such diverse ways I’m not sure you can apply a strict rule,” she says.
“It’s a very emotive point,” she continues. “Where the structure of the mall doesn’t allow a particular garland or star to be hung outside everybody’s shop it causes an issue because people want to see the value of their investment outside their shop.” Other retailers are indignant because they have no input on the type of decorations and entertainment displayed in the centre, as sheer numbers would make taking a democratic decision virtually impossible. “It’s easier when the responsibility is taken over by a central body, which could be the owners or the management of that centre,” concedes Ford.
The Trafford Centre uses Christmas events to draw big crowds. But who should pay?
The new Westfield London shopping centre has reportedly enraged retailers after hiking up service charges – before tenants had even moved in. The charge reportedly rose from £8 to £14 per sq ft, one of the highest in the UK, and could result in costs soaring by £500,000 for some retailers.
Richard Kingston, vice president for leasing at Ivanhoe Cambridge which owns the St Enoch centre in Glasgow, says it is not necessarily the amount, but the uncertainty which gets retailers’ backs up. “Retailers like certainty,” he says. “If you tell them their service charge is going to be X and it is, then they’re happy. They’re quite good at judging what turnover’s going to be and then they minus their costs, including service charge, and they get their profit at the end of it. One of the big ticket items is service charges so if that goes wrong, their formula goes wrong.”
At Westfield, discussions between the landlord and tenants are ongoing, and although it’s open to reviewing ongoing costs, the West London centre is adamant it will not reduce customer service to levels it finds unacceptable just to placate retailers. “Westfield recognises that the Service Charge Code of Practice is there, but feels its practices are just as good,” says John Gray, service charge manager at SGP Property and Facilities Management. It is just a matter of bad timing to launch a high end shopping centre at a time when people are tightening their belts, because such assets are costly to maintain, explains Gray.
“When everybody signed up to Westfield London, or what was White City at the time, I feel they ordered a good Jag. What Westfield delivered was a gold plated Rolls Royce. And gold plated Rolls Royces come with a certain level of cost for servicing them,” he concludes.
