The Sun. 42 WYNDHAM STREET. AUCKLAND TUESDAY, MARCH 12, 1929 THE PROBLEM OF SHOP RENTS

Sun (Auckland), Volume II, Issue 610, 12 March 1929, Page 8

The Sun. 42 WYNDHAM STREET. AUCKLAND TUESDAY, MARCH 12, 1929 THE PROBLEM OF SHOP RENTS

THE broad statement that shop rents generally are excessive will not stand analysis. That does not alter the tact, however, that some shopkeepers find it difficult to pay their rents owing to reduced turnover. The circumstances of each case must be taken into consideration.

In some respects a shop is like a farm. One man will pay £SO an acre for a farm and make a living, another could he given the farm at £4O an acre and still be unable to make ends meet. Many a shopkeeper goes into business with more optimism than experience. If business conditions are booming he comes to no harm. Quick success is apt to carry him off liis feet and when the slump arrives it is the old story of unsaleable stocks, high overhead, and no cash to pay the gas bill and the landlord.

The business depression of the past two years has been very severe, and the shopkeeper deserves everyone’s sympathy, despite the fact that, like the farmers, hundreds were destined to crash when they started out on their business careers and it is not much use, as our correspondent “Democrat” suggests, calling on the State for help. There is another side to the story. Before there can he any shops somebody must risk his money in a property investment. The man who buys or builds a block of shops in Karangahape road or elsewhere takes into consideration the return likely to be earned on bis capital. The inducement of a prospective increase in values has often been responsible for tlie investor paying too much. It is surprising liow rates, interest, land tax, repairs and other charges conspire to beat the so-called unearned increment which can be as slow as a tortoise when the investor most needs a little speed and for every lucky property speculator who can brag about a quick profit there are six whose investments are a millstone round their necks. The law of supply and demand is it cruel but effective way of adjusting most of these matters, and the owner whose equity in a place has disappeared and attends a mortgagee’s sale to see his property bought in by the moneylender, is just as pathetic a figure as the bankrupt shopkeeper. We readily agree, however, that there is a real problem in the equitable adjustment of shop rents quite apart from troubles arising out of business depressions. Few retailers can afford to own their own freeholds, just as few farmers can buy their places outright for cash. They need most of tlieir capital for the purchase of stock. Landlords are wary. They are averse from long leases because they know that if there is an appreciation of values the tenant may be able to slide out with a substantial sum for the goodwill of his lease. Consequently most shopkeepers have to be content with short leases. If they are successful, the goodwill of the business is largely at the mercy of the landlord. Should he be a just and fair-minded man an extension can usually be arranged on equitable terms: if he is inclined to be rapacious it is a had look out for the tenant. The problem has been partly solved in other parts of the world by the adoption of what is called a “per centage rent.” Every business can only afford to pay a certain proportion of its turnover in rent. A grocery business with a large turnover on a narrow margin, for example, would pay a much smaller percentage rent than a photographic, a chemist’s business, or even a draper’s business which usually operates on a larger margin, but the theory of the percentage rent, fixed in the first place with due regard to a fair return on the capital invested by the landlord and to the nature of the business, is that the rent increases in a just proportion to the expansion of the business and the profits of the tenant. If the shopkeeper is doing well the question of renewal of his lease never arises. If he is a muddler and is unable to maintain the business he set out tp get, the landlord has his remedy. '

It appears to us that in a city like Auckland, which speaking generally, is the subject of fairly rapid growth and expansion, while at the same time is liable to experience periodical slumps, the percentage rent is worth a trial and might be the means of improving relations between shopkeepers and property owners. It would give the former more security, and at the same time enable the latter to reap some of the expected benefits, which were a factor in persuading them in the first place to invest in property.