Leasing Tips

Tips for Landlords and Tenants

• A tenant before entering into a lease must approach entering into a lease with a great deal of caution.
• Without taking appropriate cautions and making assumptions instead of completing the required due diligence before entering into the lease agreement could prove to be dangerous and costly.
• A key mistake that can be frequently overlooked when contemplating entering into a shopping centre lease, is that you need to take into consideration the fact that the Landlord could introduce a competitor into a near-by location which is likely to reduce your market share, unless you have taken steps to negotiate an exclusivity provision. Failing to take appropriate measures means that this is something to which you have no control over.
• Be aware that not every shopping centre tenant will make an acceptable profit. You may begin 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 need to master many key 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 operation to succeed. There are numerous tenants that fail make a sufficient living in shopping centres. Undertake some forward planning and attempt to realistically estimate your future sales and expenses before entering into a Lease.
• It is worth considering that your best bargaining position is whilst you are negotiating your initial Lease. When your Lease comes up for renewal you are in a much weaker bargaining position. At the time of a lease renewal, you will have established your goodwill, however it is hard to find a buyer for a business without a sufficient Lease term. Take into consideration the fact that you have spent a great amount of money (upwards of hundreds of thousands of dollars) 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. Therefore as stated previosuly it is in the initial Lease deal that you have the strongest bargaining position. If possible consider seeking to negotiate an option term.
• No matter what happens, do not be pressured into signing a Lessee’s Disclosure Statement until you have properly recorded the representations that have been made to you during Lease Negotiations.
• 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.
• Remember - think twice before you risk your house by providing a Personal Guarantee.
• Actually read the documents in detail very carefully. 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.