Landlords & Tenants – Vital Links in a Chain of Success
Historically, there has been some tension between tenant and landlord that serves no-one, despite each side thinks it’s protecting itself from the other.
It starts at the lease negotiation stage and ends far too often with a tenant closing down or running out on their lease. More often than not, both scenarios could be avoided, and this post-Covid industry reboot is the perfect opportunity to make new normal for our industry.
Because a 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 on your dealings with each other. I learnt the hard way not to ignore this – when I was still quite green in the industry I tended to go into business 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 I was about to sign the lease on my third venue in the CBD, I made a few major mistakes, mistakes that cost me that restaurant and about ½ a million dollars, whilst giving me nothing but sleepless nights and heartburn.
How? I ignored the fact that the neither of us saw eye to eye. Yet we all remained determined to continue the deal regardless.
And that’s what happened in the end – our restaurant didn’t perform well at all, and we faced the painful decision to close shop – not even making it to its second anniversary.
The tone was already set for our relationship with the landlord and unfortunately there was little support there, we closed that restaurant and learnt many a painful lesson.
So right now I think in amongst all the desperation and pain in the hospitality industry, is a rare opportunity to find a a new way of relating to each other. I think it would create more success for all sides of the industry, if we decide to join forces towards a common goal.
We need to aim for collaboration and transparency if we have a hope of creating more long-term business and financial success. Mutually prosperous relationships are the golden egg!
Starting at the start of the relationship is key – whilst landlords/representatives have traditionally assessed a tenants’ concept, branding, menu and viewed an assets and liability statement at the application stage, the tenants’ business fundamentals or business acumen quite often remain unassessed and unknown. A tenants’ abilities in this area is the main decider between success and failure.
To date many landlords hold the belief that further assessment of a potential tenants’ financial and business acumen leaves them liable should that business go pear-shaped.
Yet once a tenant reveals an issue or a downturn in business significant enough to request rent concessions, it’s usual practice 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 need to step away from the ‘their business is none of my business’ mindset, or continue to be financially vulnerable. Most landlords have been in a position where they invested heavily in a tenant, in good faith, only to find out that the tenants’ business fundamentals are missing, and the business management skills leave much to be desired.
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 – possibly to the same result if they don’t do anything differently.
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 in location after location as the days from jumping from landlord to landlord in the hope of one business being successful are long gone.
So going back to my earlier statement, start at the start – find the right tenant and qualify them at the start!
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.
The landlord and tenant are both vital links in this chain of success. A collaborative approach to tenanting spaces that includes active participation in the assessment and application process by the landlords or representatives is essential.
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. As the saying goes – nothing changes, if nothing changes.