SumoSalad close to winning lower rental deal with landlord Westfield

Fast-food franchisee SumoSalad has reportedly managed to negotiate lower rents from reluctant landlord Westfield through its tactic of insolvency laws.

The two parties are close to a mutually favourable commercial outcome, with the final details to be sorted out by early next week, Australian Financial Review columnist Tony Boyd wrote in Chanticleer.

The deal is expected to attract great attention from retailers operating in large shopping centres because it will show that it is possible to tip the balance of power from landlords back to tenants, Boyd said. 

SumoSalad co-founder Luke Baylis said on Tuesday he was negotiating better rental terms at Westfield centres, without going into details. 

SumoSalad’s boss put two of the 20 companies in his group into voluntary administration in June, escalating the tension between the fast food chain and Westfield after failed attempts over six months to negotiate cuts in leasing charges.

The two companies, Sumo Westfield Leasing Pty Ltd and Sumo Leasing Pty Ltd, were put into voluntary administration with Morgan Kelly and Peter Gothard from Ferrier Hodgson appointed voluntary administrators. 

Baylis’s contention was that SumoSalad franchisees had suffered from the opening of new food eating areas which, according to him, was designed to increase foot traffic but had cannibalised the sales of SumoSalad outlets because of increased competition.

"Using the voluntary administration law involved a more strategic approach in terms of negotiating," Baylis said.

He added that SumoSalad was well prepared for using the insolvency laws because all of its leases were held in separate companies within the SumoSalad Group. The two SumoSalad leasing companies had 63 separate leases across 25 different lessors. Westfield was responsible for 19 of them.

Kelly compared the use of the voluntary administration laws by SumoSalad to the Chapter 11 bankruptcy law in the United States. 

“You have protection from your creditors while you negotiate a commercial outcome,” he said.

"I believe the use of the laws in this way is unprecedented.” 

Kelly said in a report to creditors that many SumoSalad franchisees were not trading profitability "primarily due to high levels of rent" and led to a number of them “abandoning their sites”.

Baylis says that while the strategic use of insolvency laws had been effective, it would cost him about $250,000.