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31 Mar 2022

Landlords could benefit from a tenant’s click and collect service

As the great return to the office continues, a practical dilemma for many is where their online order should be sent now they are not at home at all times.

For many, click and collect is the answer, with various supermarkets, petrol stations and corner shops offering this service. The availability of click and collect is on the rise, and this is a lucrative market. Click and collect services do not just solve the “no one at home” problem; they are often faster and cheaper than traditional delivery services. 

To be clear, we are not talking about ordering from Sainsbury’s and picking up those groceries from the local Sainsbury’s store. We are talking about ordering from, say, Amazon and collecting the goods from the corner shop.

Retailers offering a click and collect service can receive payments from the parcel delivery company or parcel network (eg Hermes or Collect+) for each parcel they receive, with the added bonus of generating additional footfall for their store which, in turn, could increase sales. 

What does the lease say?

Where a supermarket, petrol station or corner shop is occupied pursuant to a lease, the parties to the lease will need to consider: 1) whether the lease permits the operation of a click and collect service; and 2) whether an unrestricted ability for the tenant to offer a click and collect service means the unit is more valuable and can command a higher rent.

Where there is an existing lease in place and the tenant is considering offering a click and collect service, the parties should consider whether this is expressly prohibited in the lease. If it is prohibited, then a tenant will need the landlord’s express permission before operating such a service and the landlord may well ask for a premium/rental uplift in return for their consent.

Going forward in new leases, we would expect savvy landlords to either: 1) expressly prohibit click and collect (save in relation to goods which can be purchased in the relevant store) so as to ensure that if the tenant tries to increase their revenue streams by offering this service, the landlord can share in this additional income stream; or 2) permit click and collect services being offered in exchange for a higher rent. 

In existing leases, if click and collect is not expressly prohibited, that does not necessarily mean that a tenant can proceed to offer such a service. The parties will need to consider the other lease clauses and whether any such clauses prevent the operation of this service or mean that consent is required to operate such a service. 

For example, what is the permitted use under the lease? If this is narrowly defined, this in itself may prevent the tenant operating an ancillary click and collect service. 

Operating the service

The parties will also want to consider how the click and collect service will operate. Will the tenant be operating this service or will they need to bring in an individual from a third party company to operate it? If so, is underletting of part and/or sharing of occupation expressly prohibited? 

Will the tenant be able to operate the click and collect service from an existing counter within their demise? Or will they need to install a new counter, or click and collect lockers? If so, is this expressly prohibited in the alterations clause? If rather than absolutely prohibiting alterations, the lease states that alterations are permitted with landlord consent, then statute implies that the landlord must be reasonable in giving or withholding its consent. Where the landlord is to be reasonable in giving or withholding its consent, it cannot demand a premium or other financial return in return for its consent. 

Click and collect services are often offered from early in the morning to late in the evening – or even 24 hours a day, seven days a week. In offering click and collect services will the tenant be hoping to keep open their supermarket, petrol station or corner shop for more hours in the day? Are there any restrictions in the lease on the hours during which the tenant may operate its business? 

While a landlord may be keen to consent to the operation of a click and collect service (particularly if it receives additional consideration for giving its consent), if the tenant does not occupy the entirety of the building, consideration must be given to the other tenants in the building. Will the increased footfall and parcel deliveries have an adverse impact on them?

Turnover leases

For completeness, we should mention landlords whose tenants have turnover leases. It is worth considering how the turnover provisions operate against the backdrop of the proposed click and collect service. Is the definition of gross turnover wide enough to capture the payments which are received from the parcel delivery company or parcel network? If it is, then it could be considered double counting if the landlord were to demand a premium from the tenant for consenting to the operation of a click and collect service. If the definition of gross turnover is not wide enough to include the parcel payments, then it may be worth varying the lease to ensure the same is captured.

This article was first published in Estates Gazette on 28th March 2022.