The RICS Service Charges in Commercial Property: Code of Practice recognises that the cost of marketing and promoting shopping centres should be borne by owners and occupiers in partnership. It also states that although the amounts contributed by the parties may vary from one shopping centre to another, full partnership means that the parties should divide the costs on a 50:50 basis. Unfortunately, however, the code does not define promotional and marketing activities. Consequently, parties to shopping centre leases must deal with this themselves.
Boots UK Ltd v Trafford Centre Ltd [2008] EWHC 3372 (Ch); [2009] PLSCS 37 concerned a shopping centre lease that defined promotions as “advertising and other forms of promotion of the centre intended to bring additional custom to the centre”. The tenant claimed that the landlord should have treated the cost of providing regular entertainment, Christmas decorations, a Santa’s Grotto and an installation known as a “sky wall” as promotions because they were intended to attract additional custom to the centre and to increase the “dwell time” of those who did visit to encourage them to spend more.
The landlord argued that: (i) a promotion could occur only where the advertising or promotion took place outside the geographical area of the shopping centre (with the result that anything done inside the centre to make it attractive did not constitute advertising or promotion); and (ii) the word “promotion” conjures up the idea of something that occurs irregularly or that is out of the ordinary.
The High Court rejected the landlord’s tests in favour of the “elephant test” – used to identify something that is hard to describe but instantly recognisable when spotted. However, it did uphold the landlord’s claim that the services provided were normal amenities or attractions. In other words, the costs of providing those services were ordinary service charge costs that fell to be included in the service charge.
Consequently, the tenants were unable to take advantage of provisions in the lease: (i) prohibiting the landlord from charging more for the cost of promotions than 10% of the total service charge costs in each service charge period; and (ii) requiring it to pay 50% of the cost of any promotional activities.
The decision highlights the importance of ensuring that promotional and marketing activities are clearly defined in shopping centre leases. The Property Managers Association has published a guide A Good Practice Guide: Shopping Centre Marketing and Promotions. This defines promotions as “attractions in the common areas of a centre designed to create additional footfall and/or increased dwell time”. It is interesting to speculate whether the outcome of this case would have been different had the parties adopted this definition.
Allyson Colby is a property law consultant
