By Gerry Gerrard
There is much debate over the different levels of transparency available in Australia’s retail property when negotiating lease agreements with landlords. It would be fair to say that many tenants are in the dark about what their desired retail space is really worth.
At Bakers Delight we know this is an issue, which can affect anyone seeking to develop a retail business. So we invest heavily in protecting and advocating on behalf of our network to shed as much light as possible on the financial decision our franchisees are about to make.
We consider our proactive stance a crucial part of our own business governance in advocating for –as well as protecting – the interests of our franchisees who are small business owners and operators. This is a fundamental part of the way Bakers Delight does business.
For the retail landlord or tenant, the fact that each state has its own Retail Act, some of which are inconsistent with each other, can make negotiating rents and managing relationships across state lines a minefield. A lack of consistency and different levels of transparency between the states and territories means individual retailers can be left floundering as they negotiate the different requests made of them by their shopping centre landlords around the country.
The complexity is fairly mind-boggling. As far back as 2008 the Australian Government asked the Productivity Commission to undertake a public inquiry to examine and report on the retail tenancy lease market in Australia. The request stemmed from concerns arising from difficulties small business face when entering into commercial leases over which they felt they had little or no control, coupled with the differences in retail tenancy laws between states and territories.
Not much has really improved since this time. According to a comprehensive comparison of retail Acts and codes conducted in 2012 by Clayton Utz, there are differences between the states when considering rent reviews, market rent reviews, security bonds, lease terminations and outgoings, amongst a myriad of other issues. For example, the Northern Territory Business Tenancies (Fair Dealings) Act of 2003 says that leases must state, “when reviews are to take place and the bases upon which those reviews are to be made”, but does not give a guidance on time frame. While in Tasmania, the same report finds that under the Code of Practice for Retail Tenancies, “adjustments are not permitted during the first 12 months of a lease or more frequently than once in each 12 month period”.
Without a common and publicly available reporting structure, such as the one that exists within residential property leases, retail tenants – especially those considering stretching their business into more than one state – can often be in the dark as to what represents a fair price for their sought-after retail space.
Renting a shop is worlds apart from renting an apartment. For example, if you look at property portals for two bedroom houses to rent in Richmond, Victoria, prices go up or down depending on the proximity to the train station, schools, cafes and restaurants. You can also see the listed price for a similar house down the street. The same level of information for renting a store in a shopping centre just isn’t as available.
In addition to this, the major landlords require sales information from retailers and are opportunistic about the way they use this – that is, they propose a lease that you can afford to pay rather than what space is worth. Retail tenancy legislation is biased towards the landlords at the expense of the tenant.
Landlords have been fighting to retain the compulsory submittal of sales figures, while retailers have been raising this issue with State Governments and industry bodies to have this requirement abolished to enable fair negotiation.
To protect against potential imbalances of bargaining power in favour of landlords, safeguards for retail tenants can sometimes be necessary, in particular in large institutional shopping centres. Retail tenants need protection, including the provision of mandatory minimum standards for retail shop leases, while providing low cost dispute resolution process for retail tenancy disputes.
With such complexity within the retail tenancy industry, coupled with sometimes intricate and onerous arrangements requested by specific shopping centre landlords, Bakers Delight takes great care to ensure that our leases for our franchisees are competitively negotiated on their behalf. With a dedicated national team, we gather as much vital intelligence as we can. For example, we will collate all information available about adjacent retailers within the same shopping centres in which we are based. This information can form the basis for establishing reasonable market rentals for that precinct or within a specific part of the shopping centre.
As an active and passionate retailer within the community who has high standards of business operations, Bakers Delight has strong relationships with landlords. This offers additional strength in negotiating.
To anyone setting out to negotiate a retail rental, intelligence gathering should be the first step. The more intelligence you have, the better negotiation leverage it provides.