Legal
update seminars aside, airports are probably the most exciting places in the
world! And what's the number one thing to do in that exciting place? It's got
to be duty free shopping. Nothing is more thrilling than purchasing your
seventh pair of overpriced sunglasses for that long-awaited stag weekend in
Tallinn. You know you don't need them, but it's duty free! You have to spend
to save! Well, millions of other poor
souls think just like us, which is why it's big business for retailers. So big,
in fact, that a retailer will enter into a particularly onerous agreement with
an airport just to have a concession there.
You will
often find that when a retailer enters into a concession agreement with an
airport, or a huge shopping centre, it pretty much has to agree to their
standard terms and the retailer will have very little bargaining power.
Although this can be frustrating for the lawyer trying to negotiate on their
behalf, there is often very little that can be done, the retailer has to either
take it or leave it.
A
concession agreement is essentially a licence, rather than a lease, there is no
landlord and tenant relationship (and so any statute that is designed to
protect a tenant will probably not apply) and the 'concessionaire' has no right
on the land. You are simply given the right to trade on someone else's
property.
I was
recently asked to interpret some clauses in a three-year concession agreement
that our client had entered into with an airport. The client is a very
well-known clothing brand. Whilst the clauses mainly related to VAT (I can
sense you're dangerously close to the edge of your seat!) the agreement as a
whole was really interesting.
I was
amazed to see how onerous it was. For example, not only was the client obliged
to pay an initial fee for entering into the agreement, but the airport also takes
approximately 25% from their sales revenue. This percentage remains the same
for all three years, but the minimum amount that the airport was guaranteed would increase, from £229,000
in year 1 to £270,000 in year 3.
On top of the
prescribed trading week and minimum trading hours; the client was required to
keep very detailed sales and footfall data which the airport had the right to
inspect on demand. They are obliged to
show the duty free price of its merchandise and compare it to the high street
price, clearly stating the amount that customers save; at its own cost and they
had to operate the 'Shop and Drop' scheme (where your shopping mysteriously and
beautifully appears at your departure gate waiting for you to collect it).
It doesn't
stop there, as the client has to implement any of the airport's points-based loyalty
schemes, then should the airport ever create a Facebook page, they are contractually
obliged to 'like' it moreover if the airport ever create a Twitter account, they
had to 'follow' it (the latter two are real, by the way). I could go on, but
you get the gist.
Whether
you're a Paralegal, Trainee, Solicitor or Partner acting on behalf of a
business, it's essential to understand the commercial realities that clients
face. Our client knew it had very little bargaining power but it relied on its
own calculations and projected sales to decide whether such a restrictive agreement
would be cost-effective.
It was only
when I was asked to work on this concession agreement that I fully realised how
this was one of the less obvious examples of a really interesting legal
relationship coupled with sound commercial judgement. From a lawyer's point of
view, it also shows how important it is not to lose sight of the client's
commercial objectives.
When every
part of your legal brain wants to shout "NO! Don't sign, it's a terrible
contract" you have to respect that ultimately, it is the client's
decision. Our role is to highlight the terms of the contract and ensure the
client is fully informed before deciding whether to enter into it.
So the next
time you're in the departure lounge coating yourself with perfume testers, it
may be worth considering what's happening in the background. There's usually a
legal and commercial reason for everything.
Rajiv graduated with LLB (Hons) from the University of Birmingham in 2007, before completing the Legal Practice Certificate at BPP Law School in London. After acting as a Legal Assistant with a large Watford firm, Rajiv joined B P Collins in April 2012 as a paralegal before beginning his training contract in September 2013.