ATMs – as easy as ABC?

In the decades since Barclays Bank invited On the Buses actor Reg Varney to launch the world’s first cash machine at its Enfield Town branch in June 1967, automated teller machines have become the primary method by which most of us obtain cash. From such humble beginnings, there are now over 3m ATMs worldwide, including more than 50,000 in the UK. Around a quarter of the ATMs in the UK are located in bank branches. However, the majority are hosted by the retail sector, primarily supermarkets and convenience stores. Since the vast majority of retail premises are occupied under leases, this inevitably raises myriad landlord and tenant issues if the retailer wishes to offer an ATM. Fortunately, resolving the landlord and tenant issues for an ATM can be as easy as ABC. Ais for… authorised use Whether a brief user clause permitting simply “supermarket” or “convenience store” use allows the tenant to install an ATM will depend on interpretation. Is an ATM part and parcel of a modern supermarket or convenience store operation, or does it represent a distinct use requiring separate authorisation? Although in 2021 an ATM may seem to be an obvious ancillary use, when did it become an accepted part of life that supermarkets and convenience stores had an ATM? User clauses are generally interpreted on the basis of what the words meant at the time the lease was entered into. Most supermarket and convenience store operators prefer to avoid the issue and remove any doubt by expressly including the provision of an ATM within a growing list of permitted ancillary uses within the user clause. Alterations Retail leases will inevitably restrict the tenant’s ability to make alterations. If the ATM is literally going to require a hole in the wall, the lease is likely to require consent, and may even prohibit external and/or structural alterations. The exterior walls may even fall outside the tenant’s demise altogether if the lease grants an internal, non-structural demise of a multi-let building. These days, it is more likely that the ATM will be incorporated within the tenant’s shopfront rather than requiring alterations to the structure of the building, which should overcome most of these issues. As with the user clause, supermarket and convenience store operators will seek to include within the alterations clause the express ability to install an ATM, ideally without requiring the landlord’s consent. To the extent that consent is required, the installation of the ATM will generally be included in any application and consent required for the tenant’s shopfront. Alienation Although the ATM operator will not have any staff working permanently on site, the machine itself occupies space. Depending on the arrangement between the operator and the retailer, the operator will often have exclusive access to the cash machine and possibly a small room behind the machine. Since exclusive possession is the hallmark of a lease, there is a possibility that a court might construe certain arrangements as an underletting to the ATM operator. Most retail leases either prohibit underlettings of part absolutely or only allow them for specified parts of the premises. Even if not construed as an underletting, many arrangements are likely to breach a tenant covenant against parting with or sharing occupation or possession of any part of the premises. In reality, many retailers will have a single commercial agreement with an ATM operator covering multiple sites. The courts now seem reluctant to overturn agreements between legally represented commercial parties with equivalent bargaining strength that they do not intend to create a landlord and tenant relationship. However, to guard against the risk of a court looking at the substance of the arrangement, the retailer should ensure that their lease expressly permits an underlease to an ATM operator. Bis for… Business rates Plenty has already been written about last year’s important Supreme Court case (Cardtronics Europe Ltd and others v Sykes (VO) and others [2020] UKSC 21; [2020] EGLR 26) which decided that, for rating purposes, ATMs are not occupied separately from their host stores. Appeals on 10,000 sites had been stayed pending the outcome, so this was a big relief for retailers and ATM operators. The Supreme Court ruled that the retailers remained in occupation of both internal and external ATM sites and that the ATM service – despite being operated by a bank – was not a distinct business activity but an integral part of the retailer’s overall business activity (“one of the typical services provided at a modern retail store”). These conclusions must however be assumed to be limited to rating law. While obviously not unhelpful, they will not necessarily inform the landlord and tenant issues around user and occupation discussed above, where different legal tests apply. Break clause If the lease includes a break clause exercisable by the tenant, the retailer needs to consider whether the presence of the ATM – and their contractual arrangements with the ATM operator – might create problems in complying with any conditions for the break to be effective. Even if the break conditions suggested by the RICS Code for leasing business premises are preferred to the vagaries of a traditional vacant possession condition, this still requires the tenant to give up occupation and leave no subtenants or other occupiers. Notwithstanding any potential ambiguity in the legal status of their occupation, the commercial reality is that the ATM operator will typically vacate on request. They will usually wish to leave if the particular store is closing, and they will also not want to risk prejudicing their ongoing relationship with the retailer. Bollards Attacks on ATMs have more than doubled in recent years and now number more than 1,000 per year. Ram raids using stolen cars or diggers can cause significant property damage and lead to increased insurance premiums. Certain sites will be more obviously vulnerable than others and may justify the installation of bollards or other protective measures. Alternatively, bollards may be necessary to deter pavement parking by users of the ATM. Whether required by the retailer or the planners, and whether for security or traffic management purposes, the bollards are likely to be situated outside the retailer’s demise. Depending on whether the ATM faces the public highway or part of the landlord’s estate, the tenant will require an appropriate licence from the highway authority or the landlord to install and retain bollards. Cis for… Consents Planning consent will generally be the retailer’s responsibility under the lease. Consent may be sought solely for an ATM, but frequently it will be incorporated within the retailer’s wider application for a new shopfront. The planning authority will consider not just the visual impact of the ATM itself, but also the wider implications of installing an ATM. This might include: any potential for increased criminal activity; the implications of people visiting the ATM on local traffic and parking; and whether the pavement is wide enough to accommodate people queuing for the ATM without causing blockages. This may result in planning conditions being imposed that have landlord and tenant implications. For example, as mentioned above, the planners may require bollards to be installed. Changing habits The golden age of the ATM may be drawing to an end. The number of ATMs in the UK has fallen dramatically from a peak of more than 70,000 just five years ago. The inexorable rise of cashless transactions has, like so many trends, been further accelerated by the Covid pandemic. Fears for the ability of certain groups, particularly the elderly and those in rural communities, to access cash are well-publicised. That said, good old-fashioned cash is not dead and buried quite yet. Despite a 30% fall attributable primarily to the pandemic, over £80bn was withdrawn from ATMs in the UK last year. Our dependence on cash may be waning, but ATMs are going to be around for many years yet and continue to be an essential service expected from supermarkets, convenience stores, post offices, petrol stations and, of course, banks. Closing words Since most ATMs are situated on leasehold premises, it is important that the lease covers all the necessary bases, and in sufficient detail. Older leases may need to be reviewed and brought up-to-date on renewal. In practice, ATM clauses are rarely controversial, and the increased footfall generated by an ATM has the potential to benefit everyone. Bill Chandler is a professional support lawyer at Hill Dickinson