Reduced opening hours: the part-time high street

With retailers experimenting with reduced opening hours, Jennifer Ayris provides an overview of the key considerations involved in doing so, including important lease provisions. Traditional shop opening hours of 9am to 5.30pm Monday to Saturday (and 10am-4pm on a Sunday) are a thing of the past. In stark contrast to 1994, when Sunday trading laws were relaxed and retailers seized the opportunity to open for longer to serve their customers, the most recent data shows that 30 years later, in 2024, shop opening hours are being cut across every retail sector in every part of the country.  What is driving the change?  Retailers are struggling to recruit and retain reliable staff, as well as contending with spiralling employment and energy costs. The minimum wage is set to rise by more than £1 per hour in April and the new hourly rate of £11.44 will also apply to 21- and 22-year-olds. It is both operationally easier and more cost-effective to trade for fewer hours. Some retailers are opting to open for fewer days (Thursday to Saturday being a popular choice); others are opening later and/or closing earlier or taking mid-day “siestas” in a bid to minimise overheads for customarily quieter trading periods.  Online shopping means most retailers have a virtual showroom available 24/7, without the physical shop needing to remain open anyway. Tenants who know they will need to operate for shorter hours than is customary, or suspect they may in the future, require leases that do not contain provisions restricting such operational decisions. Limiting factors could be onerous keep-open clauses or – in the case of a turnover rent lease – provisions which require the payment of an additional notional rent if the premises are closed. Keep-open provisions Keep-open clauses are common in retail leases. They require tenants to keep their premises open and their business trading during “usual” trading hours throughout the lease term. Operating reduced opening hours is likely to fall foul of a standard keep-open provision. Landlords of shopping centres have always considered it key to enhancing their rents and property values that shops are open to create a vibrant commercial environment, keeping the centre attractive to customers and driving footfall. Consequently, landlords attach much value to keep-open provisions. While landlords of shopping centres are unlikely to exclude keep-open clauses altogether, the wording of such clauses requires careful consideration by tenants seeking to operate for fewer hours than a landlord may typically require. In respect of leases that are yet to be completed, solicitors acting on behalf of tenants in lease negotiations should consider the following suggestions when reviewing the keep-open provisions: Ensure the lease contains clear parameters setting out the minimum required trading hours, tailored to suit the retailer’s requirements. Many leases will specify that the premises must be open for the hours of the locality – a problematic concept, especially when the hours of the locality may be shifting. There should be no ability to allow the landlord to extend the required operational hours – leases may allow the landlord to vary the tenant’s trading hours, but any power to change them upwards needs to be resisted. Should a tenant be obligated to remain open if specified anchor tenants are closed or if, say, 50% of the other retailers in the locality are not open? A tenant should not be expected to trade in isolation. The tenant should have the ability to close for short periods – for example, in the event of staff or stock shortages, strikes, a premises refit, repairs being required, inventory checks, national holidays, statutory restrictions (such as those imposed during Covid-19) or pending an assignment of the lease. For leases that have already been concluded, retailers need to consider whether operating fewer hours will put them in breach of the keep-open clause.  While the courts will not award specific performance for breach of a keep-open clause (meaning that retailers cannot be forced to trade against their will) damages can be awarded to landlords. Tenants with keep-open provisions in their leases must be careful that any cost savings derived through shorter hours are not negated by damages awarded or legal fees incurred. Tenants in this scenario would be best advised to approach their landlord to see if it is prepared to vary the terms of the keep-open clause before reducing their hours.  If lease provisions are to be varied, it is advisable to ensure the shorter hours marry up with neighbours’ hours and adjacent traders are not alienated Turnover rent leases  Many retail tenants will occupy their premises on turnover rent leases owing to the turbulent market conditions created by online shopping and the pandemic. Tenants can benefit from lower starting rents (typically 80% of open market rents) but with the landlords then sharing in their tenants’ successes. Typically, landlords will charge an additional turnover rent top-up payment of 10% of the tenant’s sales/turnover to the extent that exceeds the starting rent. Naturally, landlords operating on turnover rent leases want their tenants to do everything possible to maximise sales. Retailers closing their shops for part of the day or week does not maximise turnover – although it may maximise their profit, turnover and profit being two extremely different things. The conflict between the best interests of landlords and those of tenants is apparent and this is another prime driver for landlords insisting on keep-open provisions in turnover leases. Landlords will often include a requirement for tenants to pay a notional rent for any days the shop is closed. This is to compensate for the landlord’s lost turnover rent opportunity. Typically, the notional rent is the 20% shortfall on the headline rent offered as a starting rent for a turnover lease. The notional rent can be calculated on either a day-by-day basis or on an hour-by-hour basis.  However, any requirement for a tenant to pay a notional rent for closed days or hours could easily wipe out the tenant’s costs savings achieved through a reduction in operating hours. For leases still being negotiated, tenants would be well advised to seek to remove the requirement to pay a notional rent for closed periods altogether. For completed leases, tenants may wish to consider approaching landlords to waive the notional rent for the additional hours or days they are considering closing. It will undoubtedly be a difficult decision for landlords to make. Are customers likely to adjust to the new opening times or go elsewhere? Is the tenant more likely to make a profit with shorter opening hours and, therefore, more likely to afford the starting rent? Is partial occupancy better than no occupancy? How will shorter operating hours affect neighbouring properties’ trade (especially if the adjacent properties are also on turnover rent leases)? Landlords will certainly want tenants to demonstrate consistency in opening hours – if the store is not going to be open all the time, the customer needs to know when the retailer will be open. Advertising hours clearly and sticking to them consistently will be crucial to the landlord and they may want it written into the lease.  Landlords may also want to add the ability to include “click and collect” and online sales in the tenant’s turnover calculations. Landlords and tenants have long debated the question as to whether, if a shop acts as a showroom for online sales and is also being used for the collection and return of products purchased online, those sales should be included in the tenant’s turnover when calculating the turnover rent due for the premises. Especially so if a tenant can reduce its opening hours because of its online presence or because customers switch to buying online as an alternative because the shop is physically closed. The landlord may also want the ability to terminate the lease if specific turnover targets are missed – this type of clause is common in outlet centre leases but is not traditional in other retail leases. It would give the landlord the option that if the reduced-hours operating model is not working, they can terminate the lease. Co-operating with fellow retailers Not only should tenants collaborate with their landlords, but retailers seeking to reduce their opening hours are advised to collaborate with fellow traders.  Alignment of opening hours is important for a locality, particularly if an anchor tenant drives customers to an area. Landlords usually secure co-dependency of trade through consistent keep-open clauses and the payment of notional rents in the event of closure. If these lease provisions are to be varied, it is advisable to ensure that the shorter hours marry up with neighbours’ hours and adjacent traders are not alienated. Other considerations There are also other non-property matters for retailers to manage before cutting hours. For example, the employment terms of existing staff will need to be revisited if their working hours and patterns are to be shifted. This change must be introduced correctly, through consultation with staff.  There should be clear explanations to avoid attrition of loyal workers. In addition, existing out-of-hours security contracts may need to be reviewed and stock delivery hours amended.  In summary, retailers contemplating reducing their opening hours must weigh up all the consequences of doing so and make sure they manage any change effectively. A failure to do so could backfire. Jennifer Ayris is a senior associate solicitor in the property division of Irwin Mitchell Photo © Lil Artsy/Pexels