Your Retail Lease is perhaps one of your most complex contracts. Without noticing it, retail businesses rely upon their lease as the foundation for the success or failure of their business.
Although the principle of rent in exchange for rights over land has been around since BC, specific Retail Lease Legislation is only 20 years old. In this short period of time, Landlords have become more sophisticated, resulting in retail property delivering consistently stronger returns than any other sector.
As Retail Property Investments have become more complex, so too has the focus on retail leases. The technology, information and leverage gap between Landlord and Retailer has widened even further. Landlords invest heavily in the strategic and financial management of their lease portfolio.
To make things more relatable, retail leases work much like marriages. At first, the couple meet and commence courting. They get to know each other better and start to understand what each wants from the other and hopefully decide to formalise the relationship. Although there is much excitement about what the new relationship can bring, soon the honeymoon is over and the reality sinks in that, like any relationship, it will have its ups and downs. Hopefully, you manage to understand the need to work together.
With time marching on, the couple realises that all good things must come to an end, as the relationship is not quite as they once imagined. In this marriage (your lease), however, only one party in this relationship knows what they get at the end, while the other must be prepared to enter the courtship again if they are to remain in the relationship. To make things mutually beneficial, this is where proper lease management plays dividends in ensuring the marriage continues well past the initial term.
Every Lease has within it, contractual and operational events, not to mention essential clauses that are critical to your rights, ongoing operation and the future of your retail business. Not understanding how a lease needs to be managed, the strategic steps to be put in place, evaluating and influencing commercial outcomes, can only lead to a painful and one-sided relationship.
Strategic and proactive lease management and administration require constant review and evaluation of the performance of the real estate for the business, instead of the business performing for the real estate. After all, you want a lease that is an asset, not an anchor! Treating the lease and the Landlord as part of the supply chain is a fundamental change needed in Retailer’s/Lessee’s mindset.
Some of the areas of influence which are mandatory to strategic managing your lease are:
- The Critical Path: Mapping the timelines and events with the lease and planning the lead times and resources required at each event to influence outcomes.
- Benchmarking and Key Performance Indicators (KPIs): Regularly reviewing and comparing against industry norms and reacting in a timely manner to align occupancy costs and real estate outcomes.
- Procedures to deal with notices and day–to-day operational issues: designating who deals with these when you are not available.
- Relationship Management: Keeping the communication professional and two-way.
These are just some of the basic tenets of lease management, which less than 1% of Lessees actually do, let alone understand. And with the distinct changes in the past 10 years, when it comes to the chain of command and communication within a Landlords’ operations, the result is the separation of roles between property management (the bricks and mortar), and leasing or lease management. It has come to a point where Landlords have created the difference in the roles to divide and conquer: one with the role of influencing relationships, and another to influence commercial leasing outcomes, widening the leverage gap even further in the marriage between Landlord and Lessee.