|Bewley's looks for major rent cut|
|LESS THAN a month after fast-food chain McDonald’s announced that it was looking for a 50 per cent reduction on the rent of its main Dublin restaurant on Grafton Street, Bewley’s Café has also confirmed that it will be pressing for a substantial cut in its current annual rent of €1,475,000. The outcome will be closely watched by other traders on the street hoping to have their rents reduced.|
Grafton Street earned a reputation during the property boom for being one of the most expensive high streets in the world. A considerable number of traders have had their rents reduced since then because of the recession and the fall-off on in consumer spending. However, some landlords – in particular pension funds – have refused to drop rents because their tenants were either unable or unwilling to show that their turnover had fallen so heavily that the viability of their businesses was under threat.
The contrasting approach by landlords has led to a two-tier market, with most of the large stores still paying higher rents than the majority of the small shops. Zone A rents have fallen from €8,611 per sq m (€800 per sq ft) to between €3,299 and €4,305 per sq m (€300 to €400 per sq ft).
On the face of it, it would appear that both McDonald’s and Bewleys can adopt a similar approach to having their rents reduced. But the reality is quite different.
McDonald’s 35-year lease of the former Hospitals Trust headquarters ran out at the end of last year, and therefore, it is entitled to new lease at open market value – probably much less than the current rent of €1.15 million.
However, the landlord, Royal London mutual life and pension fund, is expected to look for premiums of at least 30 per cent on the rent to take account of the scarcity value of having a round-the-clock food business on the city’s premier high street, and also because of the sheer size of the building – it extends to 1,858 sq m (20,000 sq ft). If agreement is not reached between the two parties, then the issue will be referred on to the Dublin Circuit Court.
Bewleys will undoubtedly have a tougher fight on its hands. At this stage, it is merely entitled to a standard five-year review of its lease, and even though it should have no difficulty demonstrating that rents have fallen sharply on the street, it is still obliged to continue paying the current rent under the lease’s upwards-only clause.
However, Bewley’s advisor Fergus Cross of College Properties, who is acknowledged as an expert on rent reviews, has apparently promised to produce “compelling evidence” which will open the way for the restaurant to have its rent reduced. The arguments to be put forward at a planned arbitration hearing will be of interest not only to other traders in the same dilemma but also to Nama, which has taken over responsibility for a €21 million Bank of Ireland loan to Ickendel, the company which owns the Bewley’s building on Grafton Street. Ickendel is controlled by Johnny Ronan of Treasury Holdings and the Conlon family from Kildare.
Ickendel’s adviser, Michael Harrington of CBRE, said yesterday that it was premature at this stage to make detailed comments on the issues involved. “Suffice to say that Bewleys rent the premises on a long-term lease that has an upwards-only rent provision.”
After taking a direct stake in the Grafton Street building, Nama may well have the final say on whether Bewley’s rent is reduced. Only last week, the State’s property asset manager issued new guidelines to debtors advising them to consider ameliorating rents on Irish properties which are above market value and in certain cases where tenants prove that the viability of the business is threatened.
However, Nama stressed its guidance was not designed to accrue benefits to a tenant who is in a position to bear the burden of rent due because they are part of a group with profitable trading outlets in and outside Ireland.
Last October, Campbell Bewley posted pretax profits of €1.74 million for 2010 and promised that once the upwards-only clauses were abolished, it would free up €750,000 for investment in the business. The Government later decided against interfering with existing leases.
During a previous dispute between the landlord and the tenant which ended up in court, it was disclosed that Ronan had offered Bewleys €6 million at the peak of the market to vacate the landmark Grafton Street building. The offer was rejected. Ronan’s unusually generous offer had been prompted by an approach from fashion giant Zara who offered a rent of €2 million a year for the building. Zara later settled for South King Street.
Campbell Catering now forms part of Aramark, the US conglomerate which is heavily involved in catering.
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