Hammerson, landlord of north-west London shopping centre Brent Cross, is suing John Lewis for a cut of its click-and-collect sales from the mall, in a case legal experts said could send a “huge shockwave” through the retail property sector.
Brent Cross shopping centre
Former landlord Standard Life Investments – now part of asset manager Aberdeen – is joining Hammerson in seeking a declaration from the High Court that click-and-collect sales should be included in the store’s turnover rent calculation, despite the retailer’s lease being agreed decades before the onset of ecommerce.
The John Lewis Partnership argues that online sales should be exempt because its store’s transactions with customers are only completed when the product is dispatched from the distribution centre to the store.
John Lewis has been an anchor tenant at the shopping centre since it opened in 1976 and pays an annual base rent under its lease terms, plus a cut of gross receipts above a turnover threshold.
The landlords claim those gross receipts should include online sales collected in the store as well as online orders fulfilled from the store, and are seeking the payment of backdated rents.
Gary Scott, property litigation partner at London law firm Spector Constant & Williams, told Property Week the case could “create a huge shockwave in the UK retail property sector”.
He added: “At its core are two simple but far-reaching questions. First, when a customer buys online but collects in-store, who gets the benefit, the digital channel or the physical landlord? The same question applies to ordering online from the store, or for online orders filled from or by the store.
“Second, can the words ‘mail, telephone, or similar orders’ written in the 1970s [lease] be taken to include a process and technology that did not exist at that time, or indeed for several decades thereafter? The answer to these questions could reshape turnover rent structures across the country.
“If the landlords win this claim, expect a wave of similar claims as owners of shopping centres and other physical retail hubs look to capture value from online-driven sales that have any connection to the premises, and which have so far been excluded from turnover rent calculations.
“If John Lewis prevails, the message to landlords will be equally clear: ‘If you want a slice of online sales, draft [leases] for it; don’t rely on historic wording’ . Either way, the sector is heading toward a future where leases must explicitly address the blurred line between digital and physical retail.”
Cara Imbrailo, partner in the real estate team at Charles Russell Speechlys, said the case would centre around a philosophical question over the role a physical store plays in generating an online sale.
“If a customer browses the shop floor on Saturday, goes home, orders online on Sunday and collects on Tuesday, who really ‘made’ that sale,” Imbrailo asked.
“Landlords would argue that the store drove the sale. With physical stores increasingly acting as a showroom for a retailer, the impact they have on driving on-line sales means that this isn’t a straightforward question. From a tenant’s perspective – and particularly when fulfilment happens at a distribution centre and the store is simply a convenient collection point – adding these sales into a turnover rent calculation can feel like being charged twice and the financial impact on the tenant can be significant.”
Scott Goldstein, property disputes partner at law firm Payne Hicks Beach, added: “The case will be decided based on how the judge interprets John Lewis’s lease, so the outcome of the litigation is fact-specific.
“However, that is a double-edged sword, because whatever the court decides in the John Lewis case, enterprising landlords will have their lawyers consult their leases to see whether they can include click and collect receipts when calculating turnover rent.
“Landlords may net unexpected windfalls and retailers will feel the pain having to account for contingent liabilities they never knew they had. The issue isn’t confined to a year’s receipts, because landlords can sue for up to six years’ unpaid rent.”
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