John Lewis is threatening to withhold as much as a fifth of payments it owes some landlords, after facing “unacceptable” annual service charge rises over the last few years.
The retail giant has told the landlords of some stores it has in shopping centres that it intends to withhold 20% of this quarter’s charge, according to the BBC.
Service charge payments cover non-rent items, such as heating, security, maintenance, marketing and staffing. John Lewis, which has around 20 stores in covered shopping centres, said it had resorted to the action to try to get its landlords to help stop the service charge increases.
“At a time when we are doing everything we can to reduce our cost base, we have unfortunately been faced with regular increases to the service charges we pay for some of our shops in shopping centres,” John Lewis said in a statement.
“Over the last three years we have seen an increase in service charges of 20% and these continued increases are simply not acceptable, particularly in the absence of strenuous efforts by landlords to work collaboratively with us to reduce these costs.”
John Lewis is seeking to get landlords to take on some of the service charge obligations during the fourth quarter, the most critical period of the year for retailers in the run-up to Christmas.
The retailer is contractually bound to pay the service charge under the terms of lease arrangements with landlords, and withholding payments could lead to legal action by property owners to recover unpaid bills. John Lewis’s biggest landlords include Hammerson and Intu.
Legal experts believe that the dire state of the high street gives John Lewis a strong hand in negotiations as landlords cannot threaten the company with repossession.
“This is a very unusual move but it is reflective of John Lewis’s position in a challenging retail market,” said Richard Cressall, partner and commercial property expert at law firm Gordons. “Pretty much no other tenant would be in a position to take John Lewis’s anchor stores at shopping centres in this market or to create the footfall they do, which all but rules out the most severe potential remedy, repossession.”
Cressall says that landlords are likely to come to the negotiating table rather than face costly, lengthy court action.
“Those landlords who do persevere [with legal action] should succeed, but in this market I think at least some landlords will choose to do a deal rather than fight in court, which must be what John Lewis is hoping for,” he says.
John Lewis said: “We are investing more in our current shop estate than ever before to do everything we can to encourage customers to grow footfall to our shops and we hope that our landlords will support us in continuing to do this.”
Earlier this week, John Lewis Partnership, the parent company of John Lewis and Waitrose, announced a major restructure to merge management of its retail and supermarket operations to save £100m.