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RISK IN CONTEXT

Making Real Estate Count in a Multi-channel World

Posted by David Tate 12 May 2016

Property is often cited as the second most expensive cost to a retailer behind the wage bill and, as a result, retailers and landlords have a mutually dependent, if at times uneasy, relationship. Intense competition and a push for expansion have sent property prices soaring, with rents and rates now accounting for more than a fifth of turnover for high-street businesses.

Although the recent budget had some good news, it provided little relief in the short term. The introduction of the national living wage, apprenticeship levies, and stakeholder pensions will see significant increases in operating costs for retailers, pubs, and restaurants across the UK.

Insurance costs
It is accepted property industry practice that the landlord should retain the right to insure its asset, and this is a feature of typical UK leases. Furthermore, it is accepted – though perhaps sometimes begrudgingly by certain parties – that the landlord should recover the costs reasonably incurred in arranging and administering said insurance.

The practice of landlords and property managers (when the management contract allows) retaining a share of the commission generated by insurance premium recovered from tenants has been in place for many years.

To ensure that the tenant is not disadvantaged by these arrangements, retailers would do well to take a disciplined and open approach in working with their landlords to ensure:

Commission is justifiable: Engage with your landlord to ensure the level of commission retained by the landlord represents equitable compensation for the insurance-related tasks they undertake.

Fair premium apportionment: Ensure the apportionment of premium between properties is justifiable and not weighted to favour a property for which premium cannot be recovered.

Transparency and disclosure: Ensure you have been informed of commission or any other earnings by the landlord that relate to the insurance premium.

David Tate