Retail law suits rise
Published: 22 November, 2011
A surge in disputes over restrictive covenants has been fuelled by the increase in empty space
The growth in the amount of empty retail space has led to a huge increase in the number of law suits over commercial leases, according to the commercial law firm EMW. The number of cases in the High Court in London over restrictive covenants has more than doubled over the last year, jumping from 11 in 2009 to 25 in 2010. There was only one such case in 2007.
Retail and restaurant companies often demand restrictive covenants in their leases to prevent landlords from selling or renting space to competitors of businesses within a defined area. Tenants could also restrict the sale of certain competing products within their surroundings. For example, a coffee shop in a shopping centre may only agree to sign a lease that requires that no other shop sells hot drinks on the same floor.
EMW explains that landlords may have been forced by the economic situation to overlook restrictive covenants in an attempt to fill vacant units or accommodate existing tenants seeking to diversify their business, for example bookshops opening coffee bars.
Geoff Willis, real estate principal at EMW, said: “Vacancy rates in retail property have risen sharply over the last few years. The need for landlords to find new occupiers or retain existing ones is far greater now, so they might not be as rigorous as they used to be in making sure they comply with restrictive covenants.”
“They are also less likely to take notice of restrictive covenants when they didn’t sign them themselves but have “inherited” them when they acquired the properties.”
