Four Pillars of National Harmonised Lease Legislation re-visited
ABC 7:30 Report
The Australian Retail Sector Competition Reform Starting Point for the ACCC, Federal Government and State Governments
(Repeat article 16th February 2009)
Further to the segment on the ABC 7:30 Report on Thursday evening we have decided to repeat an article dated February 2009 to clarify current Australian small retail sector views – there is some debate around point 4, Annual Rent Increases on which we would appreciate views or alternatives – no alternatives not an option.
To leave Annual Rent Increases out as a negotiating item is wrong – an option acceptable to all parties has to be found to re-balance the 2009 rent cost gulf between the major retailers and Australia’s specialty chains, medium and SME retailers’.
· As stated in the February article retail occupancy costs and the need to have harmonised low cost lease legislation is the number 1 issue for Australian retailers - this demands a combined Federal and State Government(s) national retail legislation review during 2009.
Previously expressed views for further comment
1. Gross Leases Preferred Option.
2. Shopping Centre Retailers’ Sales provided to an independent third party.
3. Shopping Centre Annual Rent Reviews Linked to Sales per Metre by Category by Centre
4. Sitting tenant subject to the sitting tenant having complied with lease conditions during the term of the lease given first right of refusal on a new lease.
5. Compliant sitting tenants new leases to reflect centre vacancies in true terms; performance of the retailers’ category over, below annual rent increases during the term of the lease; the average sales per meter for the category and the average category occupancy to sales %.
6. As a Community Asset Statuary Local Government Charges to be linked to the rise or fall of sales within Local Shopping Centres.
7. Recognising the monopoly catchment control of community retail services provided by Shopping Centres Local Planning Authorities to be provided with an Annual Performance Reports on Shopping Centres under their jurisdiction;
8. Rollover rent review clauses to be deleted.
Five other issues covering the status of the sitting tenant at lease expiry; centre vacancy reporting; local government statutory charges; Shopping Centre reports to Local Government; Rollover rent review clauses have been identified for further comment.
From previous articles defining occupancy disparities major retailers vs. Australian specialty chains and SME retailers, a number of thought streams have emerged with recommendations to rebalance the relationships between the retail giants; the Shopping Centre Industry and Australia’s specialty chain and SME retailers’.
We have tried to identify those options which reflect our preference for a free and open market, but also recognise the uniqueness of the Australian retail sector in relation to the perceived dominance of a powerful retail duopoly and the very successful but perceived overly dominant Australian Shopping Centre Industry oligopoly.
The following views expressed are the views of contributors are not necessarily the views of The RETAiL Alert Group on which we would welcome retailer, Shopping Centre Industry and State / Federal Government (s) comment.
All suggestions predicated on the view that an average Australian Shopping Centre under local government jurisdiction is a controlled sometimes monopolised marketplace, not a free and open retail marketplace.
Gross Leases Option
To overcome the distrust that exists in the manner in which outgoings seem to vary above annual market increases, the option of a chain / SME Retailer gross lease similar in form to that applied to major retailers has been raised for comment.
Management fees sometimes linked to increases on rent, one bone of contention.
To protect retailers’ from the practice of some off shore Shopping Centre Owners refusing to undertake adequate maintenance and marketing of their properties some strengthening of lease provisions to be considered providing teeth ensuring all landlords comply with lease obligations.
One radical suggestion; off shore and local shopping centre landlords who do not comply with the obligations under the lease should have centres placed under a form of administration until lease obligations are met.
A suggestion was made to exclude statuary charges from a gross lease.
It is felt to re-balance the market relationship distortion between major retailers and Australian specialty chain and SME retailers that a chain / SME Retailer gross lease should also provide lease term period options; gross % options and full fit-out contributions as part of the standard terms and conditions when negotiating a Shopping Centre lease.
Another suggestion; leave statuary charges in a gross lease to encourage shopping centre owners to negotiate hard with local authorities on unreasonable statutory charge increases.
All Retailers’ Sales provided to an independent third party
To eliminate the perceived misuse of sales figures for rental increase purposes, individual monthly sales and annual audited sales figures should be only provided to an industry sector approved independent third party.
The independent body would compress individual retailers’ sales into Retail Categories for general and ABS retail statistics publication.
Should however the sole basis of occupation be a gross % of sales, (which can rise and fall in relation to sales within a centre) then individual retailer’s sales can be declared to the landlord via the independent third party on a monthly or annual basis.
Retailers’ should be able to review their individual sales figures within their category but not be privy to competitors’ sales other than those reflected at Category level performance or sales per meter averages.
Australian retailers’ need to be able to obtain sales per meter statistics by category and overall centre performance to assess their performance against the average of their competitors and assess market conditions in other Shopping Centres.
Shopping Centre Category sales figures should be an open document available for prospective tenant, Local Council, State Government, Federal Government and ACCC review.
The independent body to provide an open monthly and annual report on the sales performance status of reporting Shopping Centres by category by sales per meter, occupancy sales % ratio levels and vacancy levels.
Shopping Centres should be able to access category sales performances for marketing and valuation purposes at anytime.
A retail sector Website to be created for this purpose.
The costs of collating Shopping Centre sales performance statistics to be borne by the Shopping Centre Industry.
The independent body to be mandated as a non profit centre; the costs of the independent body open for audit purposes making sure that costs to the Shopping Centre Industry are kept to the minimum.
Shopping Centre Annual Rent Reviews Linked to Sales per Metre by Category by Centre
It is proposed that annual rent reviews currently CPI, CPI plus 1-2% or fixed % increase be banned and Shopping Centre Annual Rent Reviews be performance linked to Sales per Meter Sales Increases or Decreases by Category by Shopping Centre.
Information obtained annually but reported monthly in monthly and cumulative terms from the recommended third party holding Shopping Centre Sales information.
· The purpose of linking annual rent increases to sales per meter by category by centre is in recognition that as Shopping Centres are a closed ‘local retail monopoly’ within a Local Government catchment operating in partnership with their tenants to maximise sales within their Category.
· Formerly recognising that a sales partnership the Shopping Centre and their Tenants exists is critical to the rebalancing the commercial relationship between Australian retailers and the Australian Shopping Centre Industry.
· Linking annual rent increases to sales per meter increases or decreases by category is a fair commercial mechanism recognising the obligation of Shopping Centre Management to maximise retail sales within their centre.
The basis of this approach being that a Shopping Centre is a monopoly catchment ‘retail sales centre’ that should fairly derive rental growth based on the success or failure of the centre’s ability to generate or not generate sales growth by Category.
Australian Shopping Centres already accept the responsibility for using substantial Tenants Marketing Funds to promote Australian Shopping Centres sales.
Consideration to be given to setting Category KPI sales per meter targets at lease commencement providing incoming tenants and lease renewing tenants with certainty as to their sales generating obligations.
Sales per meter by Category obligations varied annually based on average Category sales per meter performance.
The Shopping Centre is obliged in partnership to account to the tenant for the use of the Tenants Marketing Funds in promoting the tenants category achieving the target Category sales per meter.
1 Reflecting the market value of anchor tenants
2 Providing a balance in specialist and SME retailer occupancy costs that reflects the real world of large retailers and smaller retailers selling similar products at similar prices.
Sitting tenant subject to the sitting tenant having complied with lease conditions during the term of the lease given first right of refusal on a new lease.
For further comment.
Compliant sitting tenants new lease to reflect centre vacancies in true terms; performance of the retailers’ category over, below annual rent increases during the term of the lease; the average sales per meter for the category and the average category occupancy to sales %.
For further reader comment.
As a Community Asset Statuary Local Government Charges to be linked to the rise or fall of sales of Local Shopping Centres
For further comment.
Recognising the monopoly catchment control of community retail services provided by Shopping Centres Local Planning Authorities to be provided with Annual Reports on Shopping Centres under their jurisdiction;
For further reader comment.
Rollover rent review clauses to be deleted
For further comment.
· Retail occupancy costs and the need to have harmonised low cost lease legislation is the number 1 issue for Australian retailers’ - this demands a combined Federal and State Government(s) national retail legislation review during 2009.
Reader comments requested on all of these points for a further consolidation of views;
email Lease Harmonisation; Gross Leases; Sales Declaration; Sales per Meter; Other Matters
Tony Standley
Principal
The RETAiL Alert Group
(Australia)
Mobile +61 (0)41 924 0497
e-mail
info@adsass.com.au
Fax +61 (0)2 9987 0633
Website
http://www.retailalert.com.au
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