Moving up a gear: why parking is a valuable commodity

Retailers with bricks and mortar stores need to ensure that every part of their shop is working hard to deliver sales. However, retailers will often overlook the additional returns that can be generated by a well-managed car park – not simply implementing car parking charges. There are ways that retailers can utilise their parking provision, so it no longer just satisfies their customer’s basic parking needs but unlocks additional revenue. This may be through the introduction of curb side collections, electric car charging points, car washing/valeting services and/or car clubs. However, there are various matters which should be considered during lease negotiations to ensure that these additional revenue streams can be accessed. Parking is a valuable commodity, particularly in retail: the success of out-of-town retail parks is accredited to customers enjoying the convenience of parking right outside a shop. Because parking is so cherished, it can become a thorny issue: who has the right to park where and when and what can the parking spaces be used for? These questions will be answered by the terms of the lease, so it is important that parking is dealt with correctly in the lease at the outset. A retailer taking a new lease with a car parking provision will usually have three options, all of which have pros and cons that need to be considered. Option 1 The car parking spaces are included within the premises and are demised to the retailer. The retailer has exclusive possession and control of those spaces but is also responsible for keeping the surface in good repair (unless a schedule of condition is agreed). The retailer bears the costs of the repairs and has to organise them. Likewise, the retailer is responsible for parking management and enforcement. Option 2 The retailer’s customers have a general right to park in any spaces within a shared car park on a first come, first served basis. The retailer does not have exclusive possession of any particular spaces and contributes towards the costs of maintenance and regulation of the car park via a service charge. The maintenance spend is outside of the retailer’s direct control (unless a cap is agreed) but the retailer is also relieved from organising repairs and management. Option 3 The retailer has a right to park in allocated spaces, usually by way of licence. To avoid granting a tenancy with security of tenure under the Landlord and Tenant Act 1954, the landlord will be able to reallocate spaces at any time. All three options address a retailer’s customers’ parking needs but carry different degrees of control and responsibility. Retailers wanting to leverage their car park to deliver additional sales should also consider the impact of the various options on their ability to do so. Ways to deliver additional income and the favoured option for each income stream are outlined below: Curb side collection Shop closures during the pandemic, coupled with customers trying to avoid in-person shopping, led to a new click-and-collect variant known as “curb side collection”. Customers park outside the shop and the retailer delivers the customer’s order to their car. Supermarkets initially started delivering groceries this way, but other retailers quickly followed, and many are still using this hybrid between online and bricks and mortar retailing. It’s a useful delivery mechanism for heavy/bulky items, customers with children, pets or mobility issues who find shopping in store difficult and customers who want their orders quickly. Retailers adopting this delivery model need the scope within their lease to put the infrastructure in place outside their door. They will need designated car parking spaces and be able to erect signage, so customers know what to do when they arrive. They may need a one-way system and queuing arrangements for busy times. Intercoms (similar to drive-through restaurants) may be required so staff can communicate directly with customers’ cars. This means that it will be important for the parking area directly outside the store to be included within the red edging delineating the demise (even if other customers just have a general right to park in the rest of the larger car park) to ensure the retailer has control over the use of the spaces. This is subject to compliance with the tenant covenants in the lease and obtaining any licence for works to authorise the alterations. Electric car charging points As the number of electric vehicles on our roads increases, access to charging points while shopping will become an essential requirement for customers. Customers may choose to shop elsewhere if there isn’t access to chargers so it is likely that retailers will use them to secure existing income streams and to boost income. Fees for using the chargers may become commonplace, but it is also likely that a customers’ dwell time will increase if they have to wait for their vehicle to finish charging. Data could be harvested from the charging points about how long a customer stays and where and when they shop, which may be more valuable to a retailer than a minimal fee for the electricity consumed. Retailers considering charging points on a small scale (for example, installing a couple for use by their own customers) will require control of the parking spaces right outside the front of the store for their installation. This points towards the retailer including these parking spaces within their demise so the necessary infrastructure can be installed. Alternatively, retailers may prefer for their customers to have a general right to park in the shared car park but with the landlord installing a bank of charging points and keeping them available for customer use. Larger scale installations may need planning permission, a grid connection from the district network operator and easements for the electricity cables. Retailers need to be aware of the costs the landlord is likely to incur which, if not fully recovered via charging fees, would need to be subsidised by the estate service charge. The costs of updating any obsolete equipment in such a rapidly developing sector may also need to be shared out between tenants of the retail park. Car washing A retailer with car parking spaces included within its demise, may want to grant a licence to an operator to wash and valet customers’ cars. At the same time as benefiting from the licence fee payable by the operator, this can also increase footfall and dwell time and generally improve a customer’s shopping experience. It is important that the licence requires strict compliance with the Responsible Car Wash Scheme to ensure all relevant statutory and legal requirements are met (in particular, employment practices and health and safety issues) in order to avoid any reputational issues for the retailer. A licence (which does not grant a proprietary interest) will be required, as sub-lettings of part are likely to be prohibited under the terms of the retailer’s lease. Car clubs Companies such as Zipcar provide on-demand access to cars and vans by the hour for either round or one-way trips. Car clubs will usually pay a licence fee to the owner of the car park. Allowing customers to collect a van from a retailer’s car park is beneficial for retailers selling large or heavy goods, and facilitating a way for customers to get home in a car if they buy too much can also lead to increased sales. Retailers will need a demise of the car park to be able to grant a licence to a car club. Words of caution The retail sector has demonstrated to us recently how important it is to keep an eye on changing consumer habits and be able to quickly react to changes in the market. Retailers have kept property portfolios flexible and agile: the average retail lease is now less than three years. In the same way that online shopping has significantly disrupted the retail market, self-drive cars could radically alter the parking market. The driverless car is now upon us and it may be that, within the next 10 years, shops surrounded by car parking is a thing of the past. An autonomous car may be able to drop off, go home and wait until the shopper needs to be picked up again, making car parking provision redundant. Retailers’ proposing to enter into leases for a longer than the average three-year term need to think carefully about this potential disrupter to ensure that parking spaces, which are currently a valuable commodity, do not become a white elephant before the end of their lease term. Jennifer Ayris is a senior associate at Irwin Mitchell LLP