Missing out on promotion

The Message: Landlords’ solicitors have to be very careful when drafting service charge clauses.

The Case: The High Court has had to decide whether entertainments and attractions at a shopping centre relate to promotion of the centre, so that the landlord has to contribute to their costs (Boots v Trafford Centre 08.12.08).

Boots is a tenant of the Trafford Centre in Manchester. Various entertainments or other attractions are provided within the shopping malls to draw in visitors or make them stay longer.

All income generated from any activities is applied by the landlord to reduce the service charge.

Under its lease, Boots is liable to pay towards the service charge but its liability to contribute to the costs incurred by the landlord in promoting the centre is limited, as the landlord has to bear 50% of the costs itself and total spending on promotion cannot exceed 10% of the total annual service charge costs.

There were four particular activities that Boots argued were to be treated as promotion costs, rather than as part of the general service charge:

• the provision of entertainment generally, such as jazz bands and children’s entertainment,
• the erection in the run-up to Christmas of substantial and top-of-the-range decorations,
• the provision of a Santa’s Grotto,
• the erection of a large television screen called the Sky Wall in the food court, which provides information about the centre and also carries advertising for individual retailers.

The case centred on the definition of ‘promotion’ in the lease. It was defined to mean: ‘Advertising and other forms of promotion of the centre intended to bring additional custom to the centre.’

It was Boots’ case that any activity designed to bring additional custom fell within this definition but the judge disagreed, as the activity had to first constitute a form of promotion of the centre itself. The judge also disagreed with the landlord’s submission that only activities outside the centre or were unusual and not regular, could constitute promotion of it.

The judge thought there could be no hard and fast rule on what constitutes a promotion and it was necessary to try to distinguish between acts that constituted promotion of the centre, and acts that were merely of benefit to the centre, such as an attraction, facility or amenity.

Using this test, he decided that the entertainments provided and the Christmas decorations and Santa’s Grotto were not promotion costs, as they were a facility, amenity or attraction.

As for the Sky Wall, the judge thought this was also not a promotion, apart from any costs incurred in using it to advertise the centre.

Such expenses would be promotion costs, of which the landlord has to pay half.

Accordingly, Boots, and other tenants if they have similar leases, will have to pay through the service charge all the costs of entertainments and attractions. In the current financial climate, retailers will be very keen to limit their service charge liabilities but this case has not helped them in this respect.

Summing up: Boots v Trafford Centre

• Boots argued that entertainments and attractions provided by the Trafford Centre should not be covered under their service charge. Instead, it said they should count as promotions aimed at attracting more custom.
• Tenants have to pay all costs of entertainment and attractions deemed to be amenities for the centre. However, their liability to pay for promotions that bring in more custom is limited.
• The High Court found against Boots. It said that, as the attractions in this case were only serving the Trafford Centre and not for wider promotion, Boots and other tenants on similar leases have to pay for the costs of entertainment and attraction through service charge.