A tenant really must approach the entering into a lease with considerable caution.
It can be dangerous and costly to make assumptions without proper foundation.
One of the key mistakes that can be overlooked when it comes to entering into a shopping centre lease, is that you need to be aware
that the Landlord could introduce a competitor and dilute your market share, unless you have negotiated an exclusivity provision.
This is something to which you have no control.
Not every shopping centre tenant makes an acceptable profit. It is easy to think that everyone else is doing well, except you. The
truth is that it is difficult for a retail operation to be successful. You must master so many disciplines – product development,
marketing and promotion, human relationship – including staff motivation and selection and financial management – just to name
a few areas which need to be mastered for a retail to succeed. There are many tenants that make an insufficient living in shopping
centres. Realistically, not emotionally, project your sales and expenses before entering into a Lease.
Realise your best bargaining position is whilst you are negotiating your initial Lease. When your Lease comes up for renewal you are
in aweaker bargaining position. At this stage, you have established your goodwill, but of course it is hard to find a buyer for
a business without a sufficient Lease term. Also, you have spent many hundreds of thousands on your fit out, thus it is difficult
to refuse the proposed increase in rent offered by the Landlord. If you are in a shopping centre it is unlikely that you would
have an Option and hence you are in many ways at the mercy of the Landlord. Thus it is in the initial Lease deal that you have
the strongest bargaining position. If possible seek to negotiate an option term.
Do not be pressured into signing a Lessee’s Disclosure Statement until you have properly recorded the representations that have been
made to you in Lease Negotiation.
Do not rely upon oral statements from leasing agents. Make sure any promises are recorded in writing in the Disclosure Statement and
preferably also in the Lease.
Think twice before you risk your house by providing a Personal Guarantee.
Actually read the documents. Do not be fooled by the statement that these documents are ‘standard’. ‘Standard’ means they are written
in favour of the Landlord.
Obtain appropriate information about the market price for rent. Realise that often lease incentives are provided which are not reflected
in the Registered Lease.
Obtain as much accurate information as you can. A Tenant is at a disadvantage compared to a Landlord in relation to evaluating a site
within a shopping centre. The Landlord has access to the trading figures of every retailer in that shopping centre over the life
of the centre and has access to all rentals, all rental arrears, information regarding each tenant in all other shopping centres
owned by that Landlord and access to traffic counts. Talk to people. Ask adjoining Tenants how they are finding trade. It is amazing
how much information you can obtain if you are prepared to spend time at the location. Examine which seem to be the busiest entry
and exit points. Ask the Landlord for more information regarding traffic flow and make certain that the Landlord is then prepared
to document this. Make use of available services to determine the rentals of adjoining tenancies (bearing in mind of course that
some lease incentives may not be present on such reports.) If the previous Tenant defaulted, telephone the Tenant to ask what their
view of the location was.
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