Morrisons Local stores pass their use-by date

Bradford-based Morrisons is looking to arrest escalating losses by selling off its ill-fated convenience stores – but faces a cost in the tens of millions of pounds.

The expensive expiry of the Morrisons Local brand is the result of a parent company guarantee which is thought to have been included in the rental agreement for the stores.  Morrisons is responsible for continuing to shell out on the rent – and may have to pay any outstanding amounts if the new owner closes the stores.

Whilst such parent guarantees are not uncommon in property arrangements (record label EMI was equally stung when HMV fell into administration a couple of years ago), the loss if it is claimed will need to be recorded as a writedown in the Morrisons accounts. It is true that the result of parent company guarantees in rental agreements could be (but is not necessarily always the case) the continuance of payment of rent by the parent company despite selling off the asset concerned.

This is the latest development in a period of turmoil for Britain’s 4th largest supermarket.  Commentators have pointed out that the move to establish small local stores came a number of years too late and in unfavourable locations with low footfall.

The new management team of Andrew Higginson (Chairman) and David Potts (Chief Executive) are looking to focus on the core business and manage the fortunes of the group’s 500-plus main supermarkets.

Investment firm Greybull Capital is reported to be in advanced talks to add M Local to their basket, for an unknown value.

If your business is looking to restructure as a result of financial difficulties, or you are looking to sell off an asset please contact Pauline Rigby, Head of Corporate & Restructuring, on 0800 689 0831 for more advice on the structure of the transaction and/or Richard Clithero should you require advice on parent company guarantees in rental agreements.

Pauline Rigby

About Pauline Rigby

Pauline Rigby is Head of the Corporate and Restructuring team at Forbes Solicitors. Pauline’s blogs cover a wide range of corporate issues, specifically areas including company formation, banking, joint ventures and shareholder matters, contractual matters and equity fundraising or investing.
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