Boots/commercial property: high street, high noon

Landlords are often seen as overpowerful, and not just by the property-is-theft brigade. The tables are now being turned. High street pharmacy chain Boots is the latest tenant to have “paused some payments” as it tries to renegotiate rental agreements. UK lease structures need reform. But hardball tactics are not the right way to achieve it.

Boots says it is trying to put its relationship with landlords “on a more modern and equitable footing”. Landlords such as Town Centre Securities accuse it of taking advantage of legislation meant to help companies that cannot afford their rent because of the pandemic. The government’s extension of a ban on evictions of non-paying tenants until the end of December has legally disarmed landlords. 

To be sure, Boots is feeling the pinch. Its retail sales almost halved in the three months to May. Even before the pandemic hit, it was being squeezed by a cut in NHS pharmacy fees. Parent Walgreens Boots Alliance has booked a $2bn impairment charge for Boots. It is well-resourced though. S&P affirmed WBA’s BBB rating in July, while warning it might struggle to cut its 2022 debt-to-ebitda ratio below four times. 

At least there is no suggestion Boots will force rent cuts using a company voluntary arrangement. The growing use of this controversial insolvency process, most recently by fashion retailer New Look, has horrified landlords.

Some property owners accept retailers need more slack, as the pandemic accelerates the shift away from bricks-and-mortar stores. Shopping centre owner Hammerson, for example, acknowledges a need for more flexible leases. It expects to rebase rents at more affordable levels — about 10 to 15 per cent lower than now. 

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But such changes need to be agreed, not imposed through rent strikes. Boots remained open as an essential retailer when many others stores had to shut. It is making questionable use of the blanket eviction ban, unnerving investors in the struggling property sector. That may rebound on the business — and on the high streets still central to its future.

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