Cart (0) Close

No products in the cart.

Return to shop

Home News Landlords & Tenants - Vital Links in a Chain of Success

Landlords & Tenants – Vital Links in a Chain of Success

Historically, there has been a lot of tension between tenant and landlord that serves no-one, despite each side thinking it’s protecting itself from the other. 

But what this dynamic really maintains is financial vulnerability.

This tension often starts at the lease negotiation stage, ending far too often with a tenant closing or running out on their lease. Often, both scenarios could be avoided, but no one seems keen to question the status quo or take responsibility for doing things differently.

The relationship between tenant and landlord is like any other relationship in your life, it has a ‘vibe’ or an ‘energy’ that can and will impact you both in one way or another. I learnt the hard way not to ignore this – when we were still early in our hospitality journey, I tended to go into dealings thinking personal attitudes didn’t matter, we’d all ‘do the right thing’ by each other for the greater good of business. 

But no.

When we were about to sign the lease on a third venue in the CBD, we made a few significant errors in judgement that went against our business model at the time and signed a lease with an agent with whom the dealings were not overly positive. That mistake cost us that restaurant and about half a million dollars.

How? We ignored the fact that communication was very difficult, and the agent elusive, one we didn’t see eye to eye with on several issues during negotations and fit out. Yet we persevered, determined to continue the deal regardless, ignoring the red flags that were coming up. 

Long story short, in the end the location was not right for us, and restaurant underperformed from the beginning. Eventually, we faced the painful decision to close shop – not even making it to its second anniversary.

The process of exiting the lease and leaving the building was one of the most stressful things we experienced! Looking back, it’s clear the tone was set for our relationship with the landlord from the start and when crunch time came, there was NO support there whatsoever. Despite the landlord not fulfilling their side of the lease either, they behaved like we were the enemy.

We closed that restaurant and they lost capital investments and wore the re-lease costs. 

So what can change? 

We need to aim for collaboration and transparency if we have a hope of creating more long-term business and financial success for landlords and F&B business owners. Mutually prosperous relationships are the golden egg!

Starting at the start of the relationship is key – develop a new way of relating to each other based on believing we can contribute to each others’ success if we change the way we see hospitality beginnings and what role we all play in the journey.

Landlords see their role as largely hands off and have traditionally assessed a tenants’ concept, branding, menu, and viewed an assets & liability statement during the application stage. Meanwhile, the tenants’ business and financial capabilities and industry experience remain unassessed, considered overreach that will leave them liable should the business go pear-shaped – as if qualifying is akin to approving, and thereby landing the responsibility of tenant success/failure on the landlord.

Essentially, landlords rely in good faith on the incoming tenants’ ability to achieve the required turnover and meet their rental commitments, only to find out that the tenants’ business fundamentals are missing, and the business management skills leave much to be desired.

In an industry with no real structure or accountability any cowboy can blaze in on a horse and have a go, if they have the money. No one cares if they know how to do it, let alone do it properly, not even the business owners themselves as far as my experience tells me!! 

Yet it’s a critical truth that these abilities are the main decider between success and failure for a majority of hospitality business.

So this indifference to qualification calls for a perspective shift from both sides, and generally a new awareness of casual qualification as a pivotal point in leasing/hospitality relationship. This point is aimed at both sides – operator and landlord. Being capable and qualified is undervalued by both sides. 

Further along in the journey, if a tenant reveals a downturn significant enough to request rent concessions, it’s only then acceptable to perform an informal audit on their financials, business skills and marketing practices – the very ones that were hot potatoes to be avoided earlier!  

Landlords are 100% financially vulnerable when leasing to operators but keeping a ‘their business is none of my business’ mindset. 

Where does that leave landlords? Their financial investment is in the wind, they have a shop full of equipment that is now theirs to resolve, and they have to start to the tenancy process all over again – most likely to a similar result if they same process plays out.

A failed tenant impacts more than just the business owner – landlords, equipment financiers and the tenant are all locked together in a chain of success. If the business fails – no one gets paid. If it fails hard and fast and they do walk away, no one gets paid, and the landlord gets lumped with the cost of a make good.

Reality is, landlords do not have an endless pit of money to throw at new tenants; and new tenants cannot afford to fail more than once, twice if they have more money than sense, and the days from jumping from landlord to landlord in the hope of one business being successful are long gone.

My advice – find the right tenant and qualify them, not just conceptually to see if they fit into the long term leasing strategy. Qualify them to operate as a hospitality owner that has the specific industry skills and knowledge required to be successful. 

If we flip the script and do these checks at the start of the relationship – the ground is immeasurably more solid for everyone involved. If there are gaps in the business skills of the tenant – it’s also in their own best interests to know before they start operating; and it’s not the dead end one might think – there are a number of ways to educate yourself these days that don’t take years.

I’d love for a new perspective to take hold – one that sees both the landlord and the tenant as vital links in a chain of success. A collaborative approach to tenanting spaces that includes active participation in the assessment and application process on behalf of the landlords. This process is also 100% in the benefit of the operator – most are unaware of just how under qualified they are, with no standard to compare their preparedness against, and no barrier of entry to stop them from moving forward when they shouldn’t.

Most landlords have at some point experienced the financial burden of an underperforming tenant, but now it’s time to accept that a more involved approach by the both parties in assessing their suitability can make all the difference to everyones’ bottom line.

So really there is no room anymore for ‘us versus them’, there is only two parties that need each other in order succeed, like a chain needs its links to be interwoven to fulfill its purpose. And a chain is only as strong as its weakest link. 

As the saying goes – nothing changes, if nothing changes.

 

Related Post

Leave a Reply