BHS bombshell
Landlords braced for £100m bill on empty stores – just as the high street faces new closures
AYEAR after its collapse into administration BHS is poised to cause fresh shocks to businesses as landlords brace themselves for a bill in excess of £100 million and unsecured creditors are set to lose more than 90 per cent of their money.
Liquidators for the chain which hit the buffers last April are handing back stores leased by the group. Many of the landlords are now facing huge costs to refurbish premises as well as being forced to pay massive business rates bills on empty stores.
At the same time it has emerged that unsecured creditors still owed money by BHS are likely to be paid less than 10 per cent of the debt.
More than 100 of the original 164 stores are still not let and it is estimated that around 50 could remain empty in the long term. Many are large stores in town centres and they will prove to be a major financial liability.
Liquidators at the department store, which mostly used leased sites, have accelerated the pace of returning property contracts. They have triggered a process to ‘disclaim’ many troubled stores. Landlords are expected to struggle to find new occupiers.
Many of the remaining stores are dilapidated and larger ones could cost several hundred thousand pounds to renovate, so the cost of repairs will run into tens of millions of pounds.
Sources have also told The Mail on Sunday that the return of leases will trigger business rates bills that could cost landlords £110million because many will remain empty.
The first lease returned under the disclaiming authority was handed back days ago to landlord Exeter City Council. Michael Carson, city surveyor at the council, said: ‘It is a large store and having it empty has not been great. But Exeter is a vibrant town and there are many areas that have suffered far more greatly from having an empty BHS.’
He insisted that finding new uses for the empty premises would not be a problem in Exeter. However, he predicted that some shop units in other towns would ‘never’ get filled.
‘This is a repeat of the Woolworths situation and some city centres can stand it, some can’t,’ he said.
‘But the nature of retail has changed and it’s possible that the days of the big, multi-purpose stores are gone. What fills those spaces won’t necessarily be retail.’
Three quarters of the 40,000 sq ft former BHS space in Exeter is expected to be signed over to a new gym and a discount store. The remainder is expected to be redesigned as a high street-based ‘tech hub’ from where small businesses can operate.
Disclaiming leases is not being used as an automatic trigger to close deals. But it can be a means of more rapidly winding up negotiations that reduces ongoing creditor claims more effectively.
It can also be used as a last resort to shed mounting liabilities for poor sites.
Mark Rigby, chief executive at business rates adviser CVS, said: ‘Disclaimers mean the BHS leases will cease to exist and that the landlords will now become entitled to immediate possession which will transfer the liability for business rates back to the landlords for their empty properties.’
Some of the stores had been split into more than one lease.
Just over 50 leases were handed back prior to liquidation in December and many of these are understood to have already found new occupiers. These include supermarket Aldi, clothing retailers Primark and TK Maxx, and various pound stores.
Since the turn of the year about 100 separate leases on around 70 stores have been agreed.
That means about three quarters of the 208 leases and 164 stores have been dealt with. A further 40 or so stores are likely to be handed back in the coming months.
A spokesman for the liquidator FRP Advisory said: ‘The process is on track to save £100million from liabilities since the liquidation began and we are positive about progress to date.’
It is understood that unsecured creditors will receive up to 9p for every £1 they are owed.
The estimated rates bill for BHS stores before they entered administration was £40million. CVS said that accounted for about 6 per cent of the chain’s annual turnover of £668 million.
By comparison, Tesco, the country’s largest retailer, pays about £700million in rates, or just over 1 per cent of overall turnover.
BHS’s former owner, billionaire Sir Philip Green, had sold the business for £1 to former three times bankrupt Dominic Chappell just a year before the chain collapsed.
In February, Green agreed to fork out £363million to plug a hole in the company’s pension fund.