Description
Documentation describes retail management discusses Major components that must be included in a property lease agreement.
Leasing Administration
Retail Management
Leasing Administration
Introduction: Lease is a contractual agreement through which a person convey his real estate property to the other person for a limited period of time, subject to various conditions. Property will be transformed in exchange for something of value, but still the ownership is retained by him. For giving a property on lease, it should be a legal property. A lease agreement is considered when the property owner (lesser) offer his estate to another person (lessee). The lesser must authorize the lessee to take and use the property owned by the lesser for a certain period of time without getting hold of the ownership. A lease agreement also includes a statement on consideration; it means that the lessee must pay something in value for using the real estate property of the lesser. Lease creates a right to use a property for the lessee. Unless there is a transfer of such an interest, there can be no lease. Section 105 of the Transfer of Property Act 1882 defines what a lease is. As per the Act, 'a lease of fixed property is a transfer of a right to use the property, made for a certain time, express or implied, or in perpetuity, in consideration of a price paid or promised to the transferor by the transferee, who accepts the transfer on such terms'. The transferor of the property is referred to as the lessor. The transferee of the property is called the lessee. The price paid for the transfer is called the premium. The money is called the rent for the lease. In order for a lease to exist, these prerequisite should be present: - There should be a transfer of right from lessor to lessee - The lessee should have a separate alienable interest in the property - The interest should be in the fixed property
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- The interest should entitle the lessee to the right to possession of the property in accordance with the lease agreement - The right to use such property should be for a certain time period - The right should be given in return for some consideration to be paid periodically or on certain specified occasions In case of a lease, there is a separation of the right of possession from ownership of property. The word 'use' includes possession also. It is to be noted that a mere personal right of possession of fixed property will not constitute a lease. When a lease is executed, the transfer that takes place is a transfer of limited right to use the property during the period of the lease. The lessee has the right only to use the property - the ownership of the property continues to remain with the landlord. It is important to note that mere transfer of right of possession without a right to use or is not a lease. After a lease is created, the lessor cannot reserve to himself any share in the right of possession. A lease can be made from year to year. Also leases for a term exceeding a year, leases reserving a yearly rent and permanent leases are possible. These leases can be made only by way of a registered document. Both the lessor and the lessee or their duly constituted authorities should execute such registered instruments. The instrument creating the lease needs to be properly stamped, executed and registered. In general, no written agreements are filed to lease a property. But it is very essential to avoid certain disputes and it should be signed by both the parties Major components that must be included in a property lease agreement: Name of tenant This means the full name of the tenant including the surname who is going to reside in your premises. The person whose name is entered in the agreement is called as tenant and he is
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solely accountable for all the terms in the lease agreement. Lease Term Lease term is the duration of the agreement or the period of the agreement. This term states the starting and ending date of the agreement. By using this you can lock the tenant at least for annual term. Also, you will have a great option to let him out by giving a monthly prior notice. Rent Payment Include the amount of rent of a real estate and the due date. This term also states the mode of payment whether by cash or check or through any other mode. You can also add an additional clause about the late rent or rent shortage. Fees, Fines, Charges This term mentions the charges that the tenants are responsible for due to late rent, rent shortage, bounced check, court fines etc. This statement also includes the utilities that the tenant can use if the charges for utilities are not mentioned in the rental charge. Security Deposit The owner of a real estate property has a right to charge an advance payment of minimum two months’ rent. This is nothing but a security for damages or unpaid bills. You have to mention how much the process will be? When it will be returned? Which charges are deducted from the deposit at the time of refund?
Number of Occupants Tenant should state the total number of persons going to use the real property. Here, you can use a special clause to mention the limit [Total number of occupants].
Hazardous Materials The owner should mention that the tenant should not keep or have risky materials on or around the property. Materials may be unsafe, inflammable or explosive that cause
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unreasonable fire around your property. Responsibilities This statement includes each and every responsibility of both the owner and tenant. It should be mentioned who is going to share the responsible for certain repairs, maintenance or damages. Usage This clause determines certain factors as: ? The property is used exclusively by the tenant as per the agreement. ? No permission is granted to illegal businesses.
? Using the property for commercial purpose along with the residence is not allowed.
Significant clauses and exigency concerning lease agreement Clauses concerning lease agreement: 1. Before reviewing the agreement, make sure that you are listed properly as one of the parties. 2. It is also important to evaluate and discuss the length of the lease agreement, the cost of rent each month, and how often and by how much the rent can be raised. Remember, all terms in a lease should be open to negotiation. The Clauses
1. Use Clause:
This clause is put in by the property-owner and signifies how the space can be used. Review such a clause cautiously and consider it with the property-owner. Because property-owners want to protect their property, their interpretation of usage may violate upon ability to adequately conduct your business.
2. Exclusive Clause:
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This clause basically helps you to limit competing businesses from opening up next door. This is only a factor if the property-owner owns the mall or other stores in the immediate proximity. Often a big mall will only allow two of a certain type of stores and locate them at opposite ends of the facility or on different floors. In a smaller mall, there may not be any direct contest. Depending on type of business, there may be this clause in the lease. This clause is particularly prevailing in retail leases. If the property-owner has not included this clause, one can want to ask him to add one to the lease.
3. Premises The premises stated in the lease need to be defined clearly. For example, if one is leasing a building, does it include the parking facility? If one is leasing an office in a large building, does this include a kitchen area or bathrooms? What is in the lease and what is defined as common area? To be clear, spell out exactly what the premises constitutes.
4. Security:
Another major aspect is security. If a clause is included in regard to securing one’s premises, evaluate it carefully. There are several questions to ask:
a) b) c) d)
Who is responsible for securing the premises? What does it constitute? Is a security system there? If not, will the property-owner install one? Does the property-owner have way in to your leased area?
The key to successfully leasing a commercial property is to review all of the possibilities with an experienced attorney. Ultimately, one wants to avoid surprises. One must ensure that all business needs are covered and that one can run your business comfortably for the term of the lease.
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Exigency concerning a lease agreement Some important items to cover in lease agreement. 1. Names of all leaseholders: Every partner in the business who occupies the rental unit should be named as leaseholders and sign the lease or rental agreement. This makes each leaseholder legally responsible for all terms, including the full amount of the rent and the proper use of the property. This means that one can legally seek the entire rent from any one of the leaseholders should the others skip out or be unable to pay; and if one leaseholder violates an important term of the agreement, one can terminate the tenancy for all leaseholders on that lease or rental agreement. 2. Limits on occupancy: The agreement should clearly specify that the rental unit is the place of a particular business of those who have signed the lease. This guarantees the right to determine what business you run, the equipments, the products etc in the space. The value of this clause is that it gives one grounds to evict a leaseholder who sublets the unit for another business without permission. 3. Term of the tenancy: Every rental document should state whether it is a rental agreement or a fixed-term lease. Rental agreements usually run from month to month and self-renew unless terminated by the property-owner or leaseholder. Leases, on the other hand, typically last a year. 4. Rent: The lease or rental agreement should specify the amount of rent, when it is due (typically, the first of the month) and how it's to be paid, such as by mail to the office. To avoid confusion and head off disputes with leaseholders, spell out details such as:
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a) acceptable payment methods (such as personal check only) b) whether late fees will be due if rent is not paid on time, the amount of the fee and whether there's any grace period c) any charges if a rent check bounces 5. Deposits and fees: The use and return of security deposits is a frequent source of friction between property-owners and leaseholders. To avoid confusion and legal hassles, the lease or rental agreement should be clear on a) The dollar amount of the security deposit (one must be sure to comply with any state laws setting maximum amounts) b) How one may use the deposit (for example, for damage repair) and how the leaseholder may not use it (such as applying it to last month's rent) c) When and how one shall return the deposit and account for deductions after the leaseholder moves out d) Any legal non-returnable fees It's also a good idea (and legally required in a few states and cities) to include details on where the security deposit is being held and whether interest on the security deposit will be paid to the leaseholder. 6. Repairs and maintenance: The best defence against rent-withholding hassles and other problems (especially over security deposits) is to clearly set out the property-owners and the leaseholder's responsibilities for repair and maintenance in your lease or rental agreement, including a) the leaseholder's responsibility to keep the rental premises clean and sanitary and to pay for any damage caused by his or her abuse or neglect b) requirement that the leaseholder alerts the property-owner about defective or dangerous conditions in the rental property, with specific details on the procedures for handling complaint and repair requests
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c) restrictions on leaseholder’s repairs and alterations, such as installing a burglar alarm system or painting walls without permission
7. Entry to rental property To avoid leaseholder’s claims of illegal entry or violation of privacy rights, the lease or rental agreement should clarify legal right of access to the property--for example, to make repairs--and state how much advance notice one shall provide the leaseholder before entering. 8. Restrictions on leaseholder illegal activity To avoid trouble among leaseholders, prevent property damage and limit exposure to lawsuits from residents and neighbours, one should include an explicit clause prohibiting disruptive behaviour, such as excessive noise, and illegal activity, such as drug dealing. 9. Other Restrictions Be sure that the lease or rental agreement complies with all relevant laws, including rent control ordinances, health and safety codes, occupancy rules and antidiscrimination laws. Any other legal restrictions, such as limits on the type of business a leaseholder may run should also be spelled out in the lease or rental agreement. Important rules and regulations covering parking and use of common areas should be specifically mentioned in the lease or rental agreement.
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Disadvantages of commercial leasing For businesses, leasing property may have significant drawbacks: 1. A net lease may shift some or all of the maintenance costs onto the leaseholder. 2. If circumstances dictate that a business must change its operations significantly, it may be expensive or otherwise difficult to terminate a lease before the end of the term. 3. In some cases, a business may be able to sublet property no longer required, but this may not recoup the costs of the original lease, and, in any event, usually requires the consent of the original property-owner. 4. The loss of book value is small and any litigation can usually be settled on advantageous terms. This is an improvement on the position for those companies owning their own property. 5. Although it can be easier for a business to sell property if it has the time, forced sales frequently realise lower prices and can seriously affect book value. 6. If the business is successful, property-owners may demand higher rental payments when leases come up for renewal. If the value of the business is tied to the use of that particular property, the property-owner has a significant advantage over the leaseholder in negotiations.
• Tenant Mix
1. Tenant Mix
Tenant mix is the combination of store types and price levels of retail and service businesses in shopping malls. A mall typically includes different percentages of the following types of tenants:
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• • • • • • • • • • • • • • • • • • • • • • Major stores Antique/Carpets/Furniture Banks and Exchanges Books/Cards Children’s Fashion Electronics Entertainment Fashion Jewellery Hair/Beauty Salons Health clubs Household Items Jewellery Ladies Fashion Leather/Luggage Lingerie Men’s fashion Cafes/Food Restaurants Sporting Goods Textiles Toys/Children’s Interests Watches
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• • Shoe stores Gifts, etc.
There are three types of tenants:
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Anchor Tenants: A tenant which occupies a large space, draws maximum footfall and highest turnover is called anchor tenant. It also attracts other retailers to locate in the mall.
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Service tenants: Tenants who provide service more than products like Food court, Multiplexes, Entertainment, etc. are called service tenants.
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Vanilla tenants: Other than anchor tenants and service tenants are called vanilla tenants.
2. Evaluate the Tenant Mix:
The variety of tenant mix influences shopper’s selection of the shopping mall and it influences the frequency of shopping trips. The choice of tenant mix should satisfy any unmet demand for goods and services within a centre’s catchment area. Tenant mix should create a specific image for a shopping mall. And position it in relation to competing shopping malls. Because anchor store letting in a shopping mall determines the feasible overall tenant mix, they are influential in determining the range of merchandise which can be offered to meet the catchment demand and position the mall in retail hierarchy. The tenant mix can increase the amount of spending by addressing these non-shopping activities. Common methods are to provide eating facilities and leisure activities. By providing places to rest and eat, shoppers can be persuaded to stay longer in the centre, increasing the chances that they will spend.
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Tenant variety has a strong influence on shopper’s level of excitement, which are positively linked to their levels of spending, desire to stay at the centre and intention to return in the future. While it is essential for shopping mall managers to understand the different classes, categories and classification of retailers, it is also necessary to acknowledge that what applies today may not necessarily apply tomorrow. Therefore, at times it may be necessary to break out of the mold and explore other tenant mix possibilities for a mall. In a mall, fashion, services, entertainment and food, intermingled with departmental stores are analysed and balanced to create the right strategic mix.
3.
Market Analysis:
A market analysis examines the trends in the trade area and identifies the characteristics that will offer a mall an advantage over its competitors, attract more customers to the mall and extend the frequency of the customer’s visit in the mall.
4.
Mall Analysis:
A mall analysis can be accomplished through a simple and more direct evaluation called a penetration study. A penetration study examines the Gross Leasable Area (GLA), of each merchandise category and the total volume of each category as a percentage. Productivity higher than the norms suggests the addition of another store to that group. While this evaluation is not foolproof, it does offer an indication of where to improve a centre’s merchandising. E.g. Gift category may comprise 2% of the GLA and generating 5% of the sales, it means that this category is workable. And if any category, say kids’ wear, occupies 20% and generating just 16% of the sales, it suggests replacing a kids wear store with another category.
5.
Owners Expectation:
Many shopping mall professionals say that the single most important factor in tenant mix is owners’ expectations. The shopping mall is owners’ creation and management of tenant mix is the most important supply-side influence on retail location at the micro-level. Shopping mall inevitably passes
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from the status of new assets, designed to accommodate state-of-the-art retail practice, and declines the degrees of functional obsolescence. In order to maintain asset value, managers need to monitor and adjust the tenant mix, but are constrained by the inertia of existing physical and legal arrangements. Shoppers can be attracted to shopping malls by many factors. The owners’ objective is for them to purchase goods and services, boosting retailer’s turnover and the share that they can take as rent. However, shopper’s motivations for visiting the mall may involve socialising with family and friends, browsing to gather information on possible future purchases and revealing boredom, rather than making purchases of goods and services. Shopping malls have transcended the role of purchase site to becoming a centre for many possible activities. An understanding of owners’ goals and objectives will enable the Mall Manager to make more informed decisions in all the aspects of management, specially leasing. This is accomplished by: • • Meeting with owners on regular basis Ascertaining the economic value of the base
Mall manager should meet at least once in a year with the owners to learn and acknowledge their expectations for tenant mix and leasing. • Leasing
1.
Meaning of leasing
Arrangements similar to rent agreements for the use of property (buildings, cars, office equipments and other items) in return for payments to the owner. The lessee (person taking out lease) agrees to pay a number of fixed and flexible instalments over an agreed period to the lessor, who remains the owner of the asset (item) throughout the period of lease. It is a primary function of all the mall managers to ensure that a full leasing program me is undertaken for their centres.
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• Finding a Tenant for your space
1. Leasing Plan This plan is simply an action plan to lease vacant space. It is important as it outlines the action that the Centre Manager will take to lease the vacant space. It should outline the details of the vacant space and philosophy on leasing the space. It should contain a positive plan out lining what action will need to be taken to secure tenants, who will undertake the action and when they are required to complete this by.
2. Action on all vacancies When leasing action is required on all premises, the following procedure is to be undertaken: • • Identify Target usages Identify Target Tenants within these usages
3. Details of Leasing Activity To Clients:
A thorough leasing details is to be provided to each client. The minimum requirement is monthly and the report should be included in the monthly management report.
4. Presentation of Vacancies:
Vacant shops have a negative effect on a shopping centre. It can lower the morale of retailer and reduce the appeal and appearance of the centre to the customers. All efforts must be made to improve the appearance of vacant areas. Hoardings should be erected and painted to
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match the centres’ colour scheme. Wording advertisement that the premises are available for could be painted on the hoarding.
Leasing Tools : Tools available to identify retailers: 1. Tenant contact database The tenant contact database contains the contact details for many retailers. Retail era be highlighted in many ways with the first method being by retail category.
2. Leasing brochure All Centre’s should prepare a professional leasing brochure at least every 18 months. The extent and cost of this can vary depending upon the leasing requirements of the Centre. Current vacancies and lease profile for 12 moths should be considered when preparing this document. If the centre has potential exposure to vacancies then an investment in professional marketing is cheap. All leasing marketing material is to be approved by the State Leasing Manager and should be developed in close consultation. Each centre should aim to improve what has already been achieved in other Centres
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3. Cold Canvassing This can be done either in person or by phone Phone canvassing ‘Script’ : “Good morning, my name is XYZ. I work for so and so company and I am the Centre Manager of mall management. We are currently looking for a category retailer for ABC Shopping centre. Would you have any interest in this opportunity?” If the potential tenant is interested, you should describe the Centre and Premises in simple and honest terms i.e. sub-regional centre of 15000 sq.m with K-Mart, Coles and 35 Speciality Shops. If the potential tenant remains interested, it is important to commit the potential tenant to action. There is a particular method to ask questions to ensure action.
a) When would you be able to visit the centre to view the site? Or better b) Can we make an appointment to visit the centre on Thursday? Not c) Give me a call if you want to view the site 4. Direct Mail Prepare a standard letter detailing the location and the strength of the Centre together with details on the vacant shop. Forward this letter to similar businesses. The “Yellow Pages” and the directory published by “Inside Retailing” are good preferences in addition to the Tenant Contact Database. 5. “For lease” signage Erection of “For Lease” signage on the shop front. Note: In Centres where there are a number of vacancies, the Centre Manager should choose the best two for signage. Too many signs give a negative impression. All signage within the centre must conform with the present Byvan signage format.
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If a shop front is in place, signage could be directly placed on the inside of the glass shop front. There are two standard signage packages. One refers to the centre management office and has a state office number. The second has only the state office number. The appropriate should be chosen on a individual basis. 6. Print Media Advertising Prior to this being auctioned, a budget must be approved by the Asset Manager responsible for the Centre and if required the Lessor. Advertising formats must use the Centre’s leasing/marketing image package or the standard package.
DOCUMENTATION TO BE USED WITH PROSPECTIVE TENANTS • Letter To Prospective Tenant Confirming Lease Details This letter is to be used to follow up any discussions held with regard to a site. It contains suitable details to enable a prospective Lessee to make a commercial decision with regard to premises.
This letter should always have a floor plan attached with the premises highlighted. It can also have details of the centre, if required by the tenant.
•
Lease Application Form This document is suitable only for independent size retailers. It requires the applicant to complete substantial detail. It is a best practice to use this document as an ‘agenda’
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for meetings with potential tenants. This will ensure that you cover all areas in a methodical way.
BEST LEASING PRACTICE The following are the best leasing practices: i. Vacancy Report/Leasing Report The leasing activity report is to be maintained & updated on a minimum monthly basis or as instructed by the Lessor. Centre mangers to liaise with leasing operatives to ensure accuracy & communication.
ii.
Meetings With Tenants Good business practice dictates that centre mangers should, whenever practicable, personally discuss all leasing matters with the lessee in the Centre manager’s office . if possible, a second member of the staff should be in attendabce at this meeting & sign off on file note.
iii.
Draft Lease To Be Available To Applicant A draft lease complete except for details of the lessee, term & rent must be held at the centre manager’s office before a shop is offered or advertised for lease. It should be available for prospective tenants to review if the prospective tenant requests.
iv.
Database Development
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All permanent leasing enquiries received at a Centre management office are to be passed on to the Leasing Department, so the prospect can be made aware of any opportunities in other Centers & added to tenant contact database for future reference.
v.
Misrepresentation Under section 52 of the Trade Practices Act & all relevant state Acts covering retail leasing, it is not acceptable to misrepresent information to other parties. Consequently, it is the responsibility of the manger who works in a mall to clearly state all facts in a true & correct manner. It is our responsibility to ensure as best we can, that applicants have a clear understanding of their responsibilities prior to them committing to a lease agreement.
vi.
Options The mall policy regarding ‘options’ is that they should not be offered at any time. There is no advantage to a Lessor by issuing an option. An option for a further term should only be offered when the lease negotiations cannot be finalized without one & with the written approval of the Lessor.
vii.
Bank Guarantees This is a document provided by the tenant’s bank to verify that the required sum of money has been put aside, in the landlord’s name, to be drawn down by the landlord, in the event that the tenant defaults on certain terms of the lease. The document must exactly match the lease in stating the name of the tenant & landlord. These original documents are valuable to the landlord & are usually kept by the landlord in a safe or
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bank. The only tenants who are exempt from providing bank guarantees to landlords are usually very well-known & respected major tenants or national chain operators.
viii.
Advance Rental Payments/Security Deposits Security Deposits are to be held by the Trust Account Department in the local office & banked into an interest-bearing account, if requested, for the term of the Lease or when otherwise required.
ix.
Area Of Premises –Measurement The correct area of a shop is important as it forms the basis of the outgoing charges & in some instances the base rent. It is important that unless scale drawings are available of an area already constructed those areas quoted to tenants are quoted. The measurement of any area needs to be carried out by a qualified surveyor.
x.
Fit Out Of Premises The fitout of premises is the single most important issue affecting the appearance of the interior of the shopping centre. A centre manager must make every effort to ensure that the tenants undertake to upgrade their premises on the renewing of the lease. At the commencement of a fitout commencement. This is to ensure that adequate services are available & is not , to be updated by the Lessee. All tenant fitouts are to be approved by the Centre Management & Asset or Leasing Manager & if required the Lessor’s Architect.
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xi. Fitout Prior To Lease Execution The mall policy is that, “No Lessee is to commence fitout or take occupation of premises, until such time as a lease is executed & returned or without Lessor’s approval. Fitout plans should also have been approved by Lessor prior to handling over the premises. Lessor’s works should not commence until such time as a lease is executed & returned or without Lessor’s approval. In certain circumstances & only with the Lessor’s written authority, a tenant may be granted permission to commence fitout prior to executing the lease. Prior to the Lessee must complete the standard letter of indemnity. Under no circumstances should a Lessee be allowed to enter into possession without first consulting the Lessor’s solicitors as to the possible implications of the Lessee’s proposal for occupancy.
Subleasing and Lease Assignment
The only legal way to get out of a lease is to sublet or transfer your lease. In certain cases, such as Joint Tenancy, there may be restrictions on the right to sublet or transfer the lease. Although the term sublease (sublet) is widely used, it only applies when the person who signed the lease intends to vacate the unit for a short period of time and expects to return to it afterwards. If the person who signed the lease does not intend to return to the unit (often referred to as "sublet with option to renew") then the lease must be assigned to the new tenant. Once the decision to either sublet or assign the lease has been made, the landlord should be notified in writing. Sublet :
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Only applies when the person who signed the lease intends to vacate the unit for a short period of time and expects to return to it afterwards. Under a sublease the landlord is not obliged to agree to an extension of the current lease with the sub-tenant. If the sub-tenant wishes for any reason to file a claim with the Regie du Logement, it must be done by the person that holds the lease and not the sub-lessor. While the landlord should be notified as to who will be replacing you in the unit, and for how long, it is the person who holds the lease who should work out the arrangement with the sub-tenant. Unless you intend to return to the apartment, it is better to assign than to sublet your apartment because in a sublet, the holder of the lease continues to be responsible for any damages to the apartment, as well as for payment of the rent for the duration of the sublease period. Procedure on how to sublet:
•
Start by placing an advertisement. You can use the Off Campus Housing Useful Links section for a list of other housing related sites. Draft an application form to get the prospective sub-tenant to fill out, that way you can check on them. On the application form you can ask the following information: Name Present address Reason for inhabiting Montreal? Tip: If they are coming to work here, the name of their supervisor, address of the company and the phone number (you can then to call up the supervisor to confirm if this person is actually coming to work with them).
•
•
• •
Once you find the right person send your landlord a notice of sublet. You will want to have a contract with the sub-tenant, you can buy a standard lease form and fill it out as if you are the landlord and the person is your tenant or draft your own contract.
•
Beware of scam (please view the left hand side bar for links to information on housing scams and frauds).
Transferring your lease: Applies when the person who signs the lease does not intend to come back to the apartment. The person hands over all his rights, to the assignee. Lease transfer releases you as tenant from all your rights and responsibilities to the apartment as of the date of the assignment.
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When a lease is assigned, the new tenant assumes all the legal rights and responsibilities for the apartment and can take action against the landlord directly. Please be advised that the landlord does have the right to ask you to cover the REASONABLE costs of a credit check on the new tenant. If you plan to assign the lease at the end of the school year, but intend to leave your possessions there during the summer, be warned that your rights to the unit will have been rescinded by virtue of the fact that the lease will have been assigned to someone else. Procedure of assigning a lease:
• •
Start by letting the landlord know about your intention. Place advertisement for your Sublet/Option to renew Or Lease Transfer. You can use the Off Campus Housing Useful Links section for a list of other housing related sites. Once you find the right person get him to fill out the Notice to Assign Your Lease The landlord has 15 days to give you an answer and can only refuse with a valid reason. Legally, a landlord may only refuse to give consent to a lease assignment for a serious reason (e.g. the new tenant will be unable to pay the rent). The reason for refusal must be communicated to the tenant within 15 days of receipt of the notice to sublet or assign.
• •
•
The Agreement of the Lease assignment is between you and the new tenant and you must give the new tenant a copy of your lease along with the Agreement of lease assignment.
Some technical terms that you will encounter when subletting or transferring a lease are:
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Term A Sub-lessor A sub- tenant
Description The occupier who sublets to the sub-tenant. The person to whom the occupier sublets the dwelling.
An Assignor An Assignee
The tenant who is assigning his lease. The person to whom the occupier assign the lease.
Sublease or assignment notice When you have found someone to whom you can sublet or assign your apartment, be sure to notify the landlord in the language of the lease. Your responsibility as a tenant If you are unable to sublet or assign your apartment, you are still responsible for paying the rent for the duration of the lease, even if you are no longer living in the apartment. Leaving the dwelling before the end of the lease could cause you to face legal proceedings. If you fail to fulfill your contractual obligations, the landlord could be entitled to damages, including rent for those months he or she was unable to find a new tenant despite all efforts in good faith, plus reasonable costs of advertising the newly vacated apartment. You could also find yourself liable for the Regie du Logement's application fee, which the landlord would have paid when he or she opened a file with the board.
Distinction between Sublease and Assignment : The right of possession may be transferred by the tenant to a third person either by sublease or assignment, provided the landlord gives consent when required. The substance of the transfer, rather than its form, may well determine the parties' liabilities to the landlord (see below). Thus, when the tenant retains some right of reentry onto the leased premises, the law deems the transfer a sublease. On the other hand, if the tenant transfers the entire leasehold
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estate, retaining no right of re-entry or other reversionary interest, assignment. From the point of view of the businessman, there is little difference between acquiring a leasehold interest by assignment and subletting a store. Most businessmen perceive the difference between the two relationships as a question of who gets the rent. A merchant understands that, if it acquires a leasehold by assignment , it pays rent directly to the landlord. Under a sublease, the subtenant pays rent to the tenant; and the tenant continues to pay the landlord. Of course, that is not the entire story. Some legal commentators explain the difference technically. It has been said that a lease is assigned when the tenant transfers his entire leasehold interest for all of the unexpired portion of the term. It follows then that, when a tenant transfers his entire interest for less than the entire unexpired portion of a term, it is technically accurate to call the relationship of sublease. It has been held that what the parties called a sublease of part of the premises demised by at least for the entire balance of the term wasn’t really a sublease but another animal called an “assignment pro tanto” These distinctions are foolish because they do nothing to help the parties define their relationships. However, the distinctions should be remembered because some crucial questions may turn on them. If a lease prohibits assignment but does not prohibit subletting, subletting is permitted. That is why it is essential to know the difference between a sublease & an assignment. There’s a surprise for those of you who apply Euclidean logic to lease drafting. The surprise is a line of cases that holds a clause that prohibits subletting of the premises does not prohibit subletting part of the premises. Most printed forms of commercial leases used in this country prohibit assignment & subletting as a matter of course. Many negotiations for store leases are concluded without the tenant’s attorney even attempting to change the assignment clause. Such a pity. Every attorney representing a tenant in a negotiation for a shopping centre lease should be alert to the possibility that his client may want to assign his lease someday. (In this context, I treat a sublease as if it were an assignment.) It must be remembered that, if a storekeeper cannot assign its leasehold, & if it cannot sublet its premises, the prospect of ever selling the business is rather dim.
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the transfer is an
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Even if the lease prohibits assignment & subletting, there may still be one avenue left for a corporate merchant to sell his business. If the principal stockholder of a corporate tenant sells all of his shares to someone who wants to buy his business, he is disposing of the corporation& his interest in everything the corporation owns. If a corporation owns the leasehold interest, the sale of the stock may do the job of selling the business without violating a lease clause prohibiting an assignment of the leasehold interest. Record of Tenant and Lease Details : When a tenant sings the Letter of Offer and before he commences trading, his tenancy must be accurately recorded on the centre’s database. • • • • • • • • • • • • • • • Shop number. Shop area (sq.ft.) Shop name Retail Category Lease term (including commencement and end dates) Base rent (Rs.) CAM Charges (Rs.) (Common Area Maintenance) Marketing Fund Contribution (Rs.) Base rent review dates and method of review CAM charges, contribution and exemptions Marketing find contribution method of calculation - % of base rent or fixed figure Revenue share % Lessee name and address Address and contact name for leasing matters Address and contact name for rent collection
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• Address and contact name and phone number for sales figure collection
Tenancy Schedule: The tenancy schedule is the main reference document for the mall and contains all tenancy details. Most landlords require the mall management team to audit the Tenancy Schedule against the individual leases on an annual basis to ensure that there are no discrepancies. Most automated systems rely on the dates and details recorded in the schedule to prompt events such as rent reviews therefore, an error in the documentation process can be costly to the landlord, if a rent review is not recorded correctly or even missed.
Lease Preparation: Normally, the mall will have an appointed legal representative or solicitor who will prepare leases on the instructions of the Mall Manager. This is to ensure total adherence to local and current lease legislation and although costly, can save the owner significant expense in potential damages, if lease documentation is not correct. The manager will provide all the relevant details, including special lease conditions to the solicitors and will be required to thoroughly check the lease for accuracy, prior to it being forwarded to the tenant for signature.
Lease Renewals: The renewal of a lease to an existing tenant within a mall management is an individual decision. Each renewal must be examined taking into account the actions outlined in the business plan and the current situation.
It is very important that no informal comment is made prior to any formal lease renewal decisions as it may give the existing lessee the wrong impression of the impending lease expiry and subsequent renewal.
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The Lessee may be required to give the written notice of the Lessor’s intention 6-12 months before expiry of the Lease. The completed form should be provided to the Lessee within either one (1) Month of receiving the notice or six (6) months before the end of the lease, whichever is lower.
Rent Reviews: In India, the majority of leases are for the term of three (3) years. Some leases, as in the case of anchors, may have a longer term. The method of determining the increases is agreed during the negotiation and will take the form of market review, fixed increases or consumer price index (CPI = inflation ) increases. In many instances. It is a combination of two or more of these methods: Year 1 – Rs. 45000 Year 2 – Year 1 + CPI Year 3 – Year 2 + CPI Year 4 – Market Review Year 5 – Year 4 + CPI
All Commercial leases other than those of a very short-term contain some form of rent review. The most common methods are : Review to Fair Market Value (FMV) : Fair Market Value rent reviews are by their nature open to option and consequently, a degree of negotiation frequently arises. The best method of negotiating a FMV rental is made by holding a meeting with the Lessee, prior to formally advising them of the increase.
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It is critical that FMV rent reviews are well-researched as most leases allow for the Lessee to appoint an independent specialist Retail Valuer, should they not agree with the new rental. Increase to the Consumer Price Index (CPI)
The methods for calculating a CPI increase is as follows :
Example:
Shop 40 Wendy’s ice cream Current Base Rental: Rs. 27,600.50 Anniversary of Lease 1st December
New Base Rental = (September CPI Current Year * Base Rental ) / September CPI Previous year
= (125/120) * 27,600.50
= Rs. 28,750.52
Monthly Holdover: If a lease is not to be renewed, the landlord and the tenant may agree to maintain the lease arrangement on a monthly holdover basis. This agreement is usually ended by either party giving one month’s notice in writing. This is usual when a landlord plans to redevelop the centre or part of centre and cannot provide security to tenure to the tenants by way of fixed term lease.
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Determination of lease at the end of term: The lease will specify the timing for notice, either by the landlord or the tenant that the lease will not be renewed. Usually it is 3 to 6 months before the end of the lease. The lease will also be specific about the conditions in which the tenacy will be handed back to the landlord. An inspection is arranged and when it is arranged that the tenancy is in a satisfactory condition, the bank guarantee is returned to the tenant. A tenancy may end in a number of ways. The term may expire; a notice to quit may be served by either party; either party may exercise their option to use a break clause; the landlord may exercise his rights to end (forfeit) the lease as a result of your breach; or you may surrender the lease with the landlord's consent. However, you as the tenant may have legal rights (unless you have contracted out) to renew a tenancy for premises which are occupied for business purposes, and which has not been excluded from protection. The law generally prohibits contracting-out but such an application may be permitted if the lease is for a fixed term and a joint application is made to the court by both the landlord and the tenant. The Mechanism for Renewal or Termination of a Protected Tenancy If the landlord wishes to end a protected tenancy he must serve notice on you, as the tenant, between 6 and 12 months before the termination date in a form which complies with the requirements of the Landlord and Tenant Act 1954. If you wish to renew the tenancy, rather than waiting for the landlord to serve this notice, you may wish to take the initiative, and within 6 and 12 months before the termination date, serve notice on the landlord requesting a new tenancy after the current one ends, again using a prescribed form. If you serve a counter-notice to the landlord that you are unwilling to give up possession, it must be served within two months (failing which your rights to a new tenancy are normally lost). If the landlord gives a counter-notice to your request for a new tenancy the notice must state his grounds for opposition and be served within two months, failing which he loses his right
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to oppose the grant of a new tenancy. Unless you agree the terms of a lease in the meantime, you must then apply to Court within 4 months of the original notice of your counter-notice for a new lease - this is so even if the landlord does not object to a new tenancy. If you do not, your right to a new tenancy is lost. After you have applied for a new tenancy, the original expiry date no longer applies and the existing tenancy is deemed in law to continue at the old rent until three months after the proceedings have ended. However, the landlord can in the meantime apply for an interim rent to be set by the court. The time limits are strictly applied and professional advice should be followed from the outset of the procedure described above. Grounds for Refusing a Renewal of a Tenancy A landlord can oppose your application for a tenancy on certain defined grounds including your failure to repair; persistent delays in rent payment; breaches of other obligations; where he can offer you suitable reasonable alternative accommodation; where he has a firm intention to demolish or reconstruct the premises; or where he has held his interest for 5 years and he has a firm intention to occupy the premises for his own business or residence. Compensation for Non-Renewal When a lease is terminated, you may face the loss of the goodwill that you have built up and costs of relocation. If the landlord successfully objects to grant of a new tenancy because of a firm intention to demolish the premises or develop or occupy the premises himself and, as a result, you fail to obtain a new tenancy or withdraw your application for a new tenancy, then you may be entitled to compensation. The amount of compensation payable is a multiple of rateable value (usually one), but this multiplier may be doubled if the same business tenant has been in occupation for 14 years or more. The landlord may try to exclude your right to compensation but this clause will not be effective if you have been in occupation more than 5 years prior to quitting possession. You may also be entitled to compensation for improvements you have carried out at the premises with the landlord's consent.
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The Terms of a New Tenancy If you have a right in the lease or other contractual option to renew the lease, the new terms will generally be negotiated by your respective professional advisers based on the old lease. Alternatively, the Court will have granted you a new lease under the statutory tenancy renewal procedure. Hopefully, you and the landlord can then agree the terms of a new lease between yourselves and in practice this is the normal route. However, if this proves impossible, the Court will have to decide. You are entitled under a Court order to a new tenancy of your property at the time when the Court makes its decision. The maximum term is at the Court's discretion, but cannot exceed 14 years. You can request a shorter term or the landlord can request it if he has unfinalized redevelopment plans. Other terms of the lease will normally be similar to those in place in the existing tenancy. Notice of termination: Landlord must give tenant written notice of termination of the lease. The notice must include the date of termination; the reason for the termination, with enough detail so that the tenant may prepare a defense; and if termination is due to failure to pay rent, the notice must include the dollar amount of the balance due and the date the computation was made; and advice to tenant that if tenant remains past the termination date, the landlord may seek to enforce the termination only through court action, and that if judicial proceedings are instituted, tenant may present a defense. The notice must be sent to tenant by first class mail, properly stamped and addressed to tenant at his address at the project, and with proper return address. A second copy must be delivered in person to any adult answering at the door of tenant’s unit. If no adult answers the door, the notice must be left under the door or attached to the door. When termination is based on "material non-compliance" with the rental agreement or failure to carry out obligations under state or local landlord-tenant law, then the time of notice must comply with the rental agreement and the law
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When termination is based on "other good cause", the termination will occur only at the end of a rental term and in accordance with the rental agreement, and in no case may tenant have less than 30 days' notice. In addition, for "other good cause" termination, tenant must have received a prior notice stating that his specific conduct, if continued, would constitute a basis for termination. That prior notice must be served on tenant in the same way as the notice of termination. Tenant's failure to object to the termination notice does not constitute a waiver of his right to contest the termination in a subsequent judicial proceeding. Evictions: Landlord may seek to evict tenant only by complying with these regulations and with state and local laws governing eviction procedures. State or local law may give to the tenant procedural rights beyond those provided in these regulations, except where the state or local law has been preempted by federal law. Rent increases and other changes in the lease : The landlord may change the terms and conditions of the rental agreement, provided he has received approval from HUD to do so. Tenant must be notified of any changes in the lease in the same way that he would be notified of termination of the tenancy, including at least 60 days’ notice in Baltimore City and at least 30 days’ notice in the rest of the state. Assignment of Lease: Occasionally a tenant wants to sell his business to a suitable buyer. The landlord cannot reasonably withhold agreement to the sale of the business, if the purchaser can demonstrate that he is an experienced and a respectable retailer with enough financial support to maintain the business in a professional manner. In these circumstances, the lease will be assigned to the purchaser. Sometimes the landlord will not release the vendor( the assigner) from his responsibility under the lease and he will remain as a guarantor for the performance of the buyer, providing the landlord with insurance that the tenant will perform to the term of the lease
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Insurance certificates: It is important that the landlord and tenant have appropriate insurances to guard against risk and loss. The tenant must provide the insurance certificate before being allowed to commence trading in his tenancy. Lease surrender Lease surrender should only be carried out with written authority of the lessor. A lease which has not expired and for whatever reason, the tenant that has vacated will need to be surrendered, in order for a new lease to be issued on that premises. General Procedures: The surrendering of a lease is a simple matter and the procedure is outlined below: • • • Written approval obtained from the Lessor for the surrender of Lease All rental and other amounts outstanding up to the date of surrender to be collected. Instructions issued to the Solicitor to engross a lease surrender.
Under Clause Change Changes in a usage clause should only be considered in certain circumstances. Written approval by the Lessor would be required. License Agreement License Agreement should be used whenever a tenant is in occupation of a space and is not covered by a lease, monthly tenancy or a casual leasing agreement. License agreement can be issued by the Centre manager without the need for a solicitor. The lessee would be required to pay all costs. Aged Debtors The aged debtors report will provide the Mall manager and admin manager with up to date account of outstanding rentals or arrears. Arrears management is a vital component of the manager’s role and is a great risk factor for the Centre’s Owner. In centre valuations, the
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arrears are taken in to account – if the tenants are not able to pay the rent, it could mean that the Centre is not viable and can reduce the overall value. The aged debtors report will list those tenants in arrears of rent, showing how many months they have owed rent, whether it is only the current month or a back – dated amount.
Rent collection Collection of a rent is an important function of shopping centre management. It is also a frustrating, time-consuming and difficult factor of shopping factor management. Usually rent is due from every retailer on the 1st of every month. Rent collection includes all monies payable under the lease(i.e. base rent, CAM, promotion key etc.). Mall management reviews all recurring charges and calculates for any special charges. Management will normally issue tax invoices to all retailers within last week of each prior month. Once retailers pay their rent, it is necessary to receipt these monies into the applicable area correctly- each centre owner/ agent may have different ways of doing this depending on the system they use, however the key is accuracy. Office management It is prudent to have an organized and efficient centre management office as this is the hub of the operation. In the office, mall management staff will be called upon in one of the two ways: • • By telephone By visiting the office
It is therefore, very important that the telephone be answered promptly and professionally and that office and all staff are always presented in a clean and tidy manner. This will ensure the perception to all stakeholders is one of professionalism, efficiency and overall high standards. It is also vital theat any material of a confidential nature not be left in an area that is visible to someone walking into the office. Communication between members of the centre management team when some are in the office and some may be out in around the centre
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usually via two-way radio. Each system varies slightly but a general guideline of the two-way radio protocol will be issued to you. Mall management will often need to send out general “memorandums” to all retailers – it is important to a copy of every letter is kept for our records and usually , security will assist in the delivery of letters to each store.
Petty cash will normally be a required in a centre management office to pay for items such as coffees/food for meetings, stamps and parking fees. Petty cash reconciliation must be completed when required and in the meantime, receipts for all items must be collected and retained. Normally , you will have petty cash tin which will have all petty cash money and receipts and this tin will be locked at all times , other than when is use.
Keys are something that, unless properly managed, can quite easily get out of control. Therefore, it is important to set up key registers. • Permanent issue keys- Generally given to mall management staff and security / cleaning staff and usually includes office key and master key to all common area locks; • Temporary keys- Generally signed in and out to contractors and usually includes keys such as electrical rooms, fire control rooms etc. Finally, keeping a record of insurances is another aspect of office management. It is prudent to have registers set up for both tenant and contractor’s insurances’ - theses registers will ensure you have all relevant parties insurance certificates on the field and will allow you to monitor when each individual’s insurance is coming up for expiry and therefore enables you to chase for updated insurance certificates.
Some of the letters attached to annexure includes: • • • Letter to a prospective lessee confirming lease details Letter requesting a meeting with lessee Rent review CPI
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• • • • Lease advising lessee of new market rental Rent review confirmation to guarantor Letter confirming change of usage After-hours contact list etc.
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doc_755073412.doc
Documentation describes retail management discusses Major components that must be included in a property lease agreement.
Leasing Administration
Retail Management
Leasing Administration
Introduction: Lease is a contractual agreement through which a person convey his real estate property to the other person for a limited period of time, subject to various conditions. Property will be transformed in exchange for something of value, but still the ownership is retained by him. For giving a property on lease, it should be a legal property. A lease agreement is considered when the property owner (lesser) offer his estate to another person (lessee). The lesser must authorize the lessee to take and use the property owned by the lesser for a certain period of time without getting hold of the ownership. A lease agreement also includes a statement on consideration; it means that the lessee must pay something in value for using the real estate property of the lesser. Lease creates a right to use a property for the lessee. Unless there is a transfer of such an interest, there can be no lease. Section 105 of the Transfer of Property Act 1882 defines what a lease is. As per the Act, 'a lease of fixed property is a transfer of a right to use the property, made for a certain time, express or implied, or in perpetuity, in consideration of a price paid or promised to the transferor by the transferee, who accepts the transfer on such terms'. The transferor of the property is referred to as the lessor. The transferee of the property is called the lessee. The price paid for the transfer is called the premium. The money is called the rent for the lease. In order for a lease to exist, these prerequisite should be present: - There should be a transfer of right from lessor to lessee - The lessee should have a separate alienable interest in the property - The interest should be in the fixed property
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- The interest should entitle the lessee to the right to possession of the property in accordance with the lease agreement - The right to use such property should be for a certain time period - The right should be given in return for some consideration to be paid periodically or on certain specified occasions In case of a lease, there is a separation of the right of possession from ownership of property. The word 'use' includes possession also. It is to be noted that a mere personal right of possession of fixed property will not constitute a lease. When a lease is executed, the transfer that takes place is a transfer of limited right to use the property during the period of the lease. The lessee has the right only to use the property - the ownership of the property continues to remain with the landlord. It is important to note that mere transfer of right of possession without a right to use or is not a lease. After a lease is created, the lessor cannot reserve to himself any share in the right of possession. A lease can be made from year to year. Also leases for a term exceeding a year, leases reserving a yearly rent and permanent leases are possible. These leases can be made only by way of a registered document. Both the lessor and the lessee or their duly constituted authorities should execute such registered instruments. The instrument creating the lease needs to be properly stamped, executed and registered. In general, no written agreements are filed to lease a property. But it is very essential to avoid certain disputes and it should be signed by both the parties Major components that must be included in a property lease agreement: Name of tenant This means the full name of the tenant including the surname who is going to reside in your premises. The person whose name is entered in the agreement is called as tenant and he is
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solely accountable for all the terms in the lease agreement. Lease Term Lease term is the duration of the agreement or the period of the agreement. This term states the starting and ending date of the agreement. By using this you can lock the tenant at least for annual term. Also, you will have a great option to let him out by giving a monthly prior notice. Rent Payment Include the amount of rent of a real estate and the due date. This term also states the mode of payment whether by cash or check or through any other mode. You can also add an additional clause about the late rent or rent shortage. Fees, Fines, Charges This term mentions the charges that the tenants are responsible for due to late rent, rent shortage, bounced check, court fines etc. This statement also includes the utilities that the tenant can use if the charges for utilities are not mentioned in the rental charge. Security Deposit The owner of a real estate property has a right to charge an advance payment of minimum two months’ rent. This is nothing but a security for damages or unpaid bills. You have to mention how much the process will be? When it will be returned? Which charges are deducted from the deposit at the time of refund?
Number of Occupants Tenant should state the total number of persons going to use the real property. Here, you can use a special clause to mention the limit [Total number of occupants].
Hazardous Materials The owner should mention that the tenant should not keep or have risky materials on or around the property. Materials may be unsafe, inflammable or explosive that cause
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unreasonable fire around your property. Responsibilities This statement includes each and every responsibility of both the owner and tenant. It should be mentioned who is going to share the responsible for certain repairs, maintenance or damages. Usage This clause determines certain factors as: ? The property is used exclusively by the tenant as per the agreement. ? No permission is granted to illegal businesses.
? Using the property for commercial purpose along with the residence is not allowed.
Significant clauses and exigency concerning lease agreement Clauses concerning lease agreement: 1. Before reviewing the agreement, make sure that you are listed properly as one of the parties. 2. It is also important to evaluate and discuss the length of the lease agreement, the cost of rent each month, and how often and by how much the rent can be raised. Remember, all terms in a lease should be open to negotiation. The Clauses
1. Use Clause:
This clause is put in by the property-owner and signifies how the space can be used. Review such a clause cautiously and consider it with the property-owner. Because property-owners want to protect their property, their interpretation of usage may violate upon ability to adequately conduct your business.
2. Exclusive Clause:
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This clause basically helps you to limit competing businesses from opening up next door. This is only a factor if the property-owner owns the mall or other stores in the immediate proximity. Often a big mall will only allow two of a certain type of stores and locate them at opposite ends of the facility or on different floors. In a smaller mall, there may not be any direct contest. Depending on type of business, there may be this clause in the lease. This clause is particularly prevailing in retail leases. If the property-owner has not included this clause, one can want to ask him to add one to the lease.
3. Premises The premises stated in the lease need to be defined clearly. For example, if one is leasing a building, does it include the parking facility? If one is leasing an office in a large building, does this include a kitchen area or bathrooms? What is in the lease and what is defined as common area? To be clear, spell out exactly what the premises constitutes.
4. Security:
Another major aspect is security. If a clause is included in regard to securing one’s premises, evaluate it carefully. There are several questions to ask:
a) b) c) d)
Who is responsible for securing the premises? What does it constitute? Is a security system there? If not, will the property-owner install one? Does the property-owner have way in to your leased area?
The key to successfully leasing a commercial property is to review all of the possibilities with an experienced attorney. Ultimately, one wants to avoid surprises. One must ensure that all business needs are covered and that one can run your business comfortably for the term of the lease.
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Exigency concerning a lease agreement Some important items to cover in lease agreement. 1. Names of all leaseholders: Every partner in the business who occupies the rental unit should be named as leaseholders and sign the lease or rental agreement. This makes each leaseholder legally responsible for all terms, including the full amount of the rent and the proper use of the property. This means that one can legally seek the entire rent from any one of the leaseholders should the others skip out or be unable to pay; and if one leaseholder violates an important term of the agreement, one can terminate the tenancy for all leaseholders on that lease or rental agreement. 2. Limits on occupancy: The agreement should clearly specify that the rental unit is the place of a particular business of those who have signed the lease. This guarantees the right to determine what business you run, the equipments, the products etc in the space. The value of this clause is that it gives one grounds to evict a leaseholder who sublets the unit for another business without permission. 3. Term of the tenancy: Every rental document should state whether it is a rental agreement or a fixed-term lease. Rental agreements usually run from month to month and self-renew unless terminated by the property-owner or leaseholder. Leases, on the other hand, typically last a year. 4. Rent: The lease or rental agreement should specify the amount of rent, when it is due (typically, the first of the month) and how it's to be paid, such as by mail to the office. To avoid confusion and head off disputes with leaseholders, spell out details such as:
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a) acceptable payment methods (such as personal check only) b) whether late fees will be due if rent is not paid on time, the amount of the fee and whether there's any grace period c) any charges if a rent check bounces 5. Deposits and fees: The use and return of security deposits is a frequent source of friction between property-owners and leaseholders. To avoid confusion and legal hassles, the lease or rental agreement should be clear on a) The dollar amount of the security deposit (one must be sure to comply with any state laws setting maximum amounts) b) How one may use the deposit (for example, for damage repair) and how the leaseholder may not use it (such as applying it to last month's rent) c) When and how one shall return the deposit and account for deductions after the leaseholder moves out d) Any legal non-returnable fees It's also a good idea (and legally required in a few states and cities) to include details on where the security deposit is being held and whether interest on the security deposit will be paid to the leaseholder. 6. Repairs and maintenance: The best defence against rent-withholding hassles and other problems (especially over security deposits) is to clearly set out the property-owners and the leaseholder's responsibilities for repair and maintenance in your lease or rental agreement, including a) the leaseholder's responsibility to keep the rental premises clean and sanitary and to pay for any damage caused by his or her abuse or neglect b) requirement that the leaseholder alerts the property-owner about defective or dangerous conditions in the rental property, with specific details on the procedures for handling complaint and repair requests
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c) restrictions on leaseholder’s repairs and alterations, such as installing a burglar alarm system or painting walls without permission
7. Entry to rental property To avoid leaseholder’s claims of illegal entry or violation of privacy rights, the lease or rental agreement should clarify legal right of access to the property--for example, to make repairs--and state how much advance notice one shall provide the leaseholder before entering. 8. Restrictions on leaseholder illegal activity To avoid trouble among leaseholders, prevent property damage and limit exposure to lawsuits from residents and neighbours, one should include an explicit clause prohibiting disruptive behaviour, such as excessive noise, and illegal activity, such as drug dealing. 9. Other Restrictions Be sure that the lease or rental agreement complies with all relevant laws, including rent control ordinances, health and safety codes, occupancy rules and antidiscrimination laws. Any other legal restrictions, such as limits on the type of business a leaseholder may run should also be spelled out in the lease or rental agreement. Important rules and regulations covering parking and use of common areas should be specifically mentioned in the lease or rental agreement.
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Disadvantages of commercial leasing For businesses, leasing property may have significant drawbacks: 1. A net lease may shift some or all of the maintenance costs onto the leaseholder. 2. If circumstances dictate that a business must change its operations significantly, it may be expensive or otherwise difficult to terminate a lease before the end of the term. 3. In some cases, a business may be able to sublet property no longer required, but this may not recoup the costs of the original lease, and, in any event, usually requires the consent of the original property-owner. 4. The loss of book value is small and any litigation can usually be settled on advantageous terms. This is an improvement on the position for those companies owning their own property. 5. Although it can be easier for a business to sell property if it has the time, forced sales frequently realise lower prices and can seriously affect book value. 6. If the business is successful, property-owners may demand higher rental payments when leases come up for renewal. If the value of the business is tied to the use of that particular property, the property-owner has a significant advantage over the leaseholder in negotiations.
• Tenant Mix
1. Tenant Mix
Tenant mix is the combination of store types and price levels of retail and service businesses in shopping malls. A mall typically includes different percentages of the following types of tenants:
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• • • • • • • • • • • • • • • • • • • • • • Major stores Antique/Carpets/Furniture Banks and Exchanges Books/Cards Children’s Fashion Electronics Entertainment Fashion Jewellery Hair/Beauty Salons Health clubs Household Items Jewellery Ladies Fashion Leather/Luggage Lingerie Men’s fashion Cafes/Food Restaurants Sporting Goods Textiles Toys/Children’s Interests Watches
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• • Shoe stores Gifts, etc.
There are three types of tenants:
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Anchor Tenants: A tenant which occupies a large space, draws maximum footfall and highest turnover is called anchor tenant. It also attracts other retailers to locate in the mall.
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Service tenants: Tenants who provide service more than products like Food court, Multiplexes, Entertainment, etc. are called service tenants.
•
Vanilla tenants: Other than anchor tenants and service tenants are called vanilla tenants.
2. Evaluate the Tenant Mix:
The variety of tenant mix influences shopper’s selection of the shopping mall and it influences the frequency of shopping trips. The choice of tenant mix should satisfy any unmet demand for goods and services within a centre’s catchment area. Tenant mix should create a specific image for a shopping mall. And position it in relation to competing shopping malls. Because anchor store letting in a shopping mall determines the feasible overall tenant mix, they are influential in determining the range of merchandise which can be offered to meet the catchment demand and position the mall in retail hierarchy. The tenant mix can increase the amount of spending by addressing these non-shopping activities. Common methods are to provide eating facilities and leisure activities. By providing places to rest and eat, shoppers can be persuaded to stay longer in the centre, increasing the chances that they will spend.
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Tenant variety has a strong influence on shopper’s level of excitement, which are positively linked to their levels of spending, desire to stay at the centre and intention to return in the future. While it is essential for shopping mall managers to understand the different classes, categories and classification of retailers, it is also necessary to acknowledge that what applies today may not necessarily apply tomorrow. Therefore, at times it may be necessary to break out of the mold and explore other tenant mix possibilities for a mall. In a mall, fashion, services, entertainment and food, intermingled with departmental stores are analysed and balanced to create the right strategic mix.
3.
Market Analysis:
A market analysis examines the trends in the trade area and identifies the characteristics that will offer a mall an advantage over its competitors, attract more customers to the mall and extend the frequency of the customer’s visit in the mall.
4.
Mall Analysis:
A mall analysis can be accomplished through a simple and more direct evaluation called a penetration study. A penetration study examines the Gross Leasable Area (GLA), of each merchandise category and the total volume of each category as a percentage. Productivity higher than the norms suggests the addition of another store to that group. While this evaluation is not foolproof, it does offer an indication of where to improve a centre’s merchandising. E.g. Gift category may comprise 2% of the GLA and generating 5% of the sales, it means that this category is workable. And if any category, say kids’ wear, occupies 20% and generating just 16% of the sales, it suggests replacing a kids wear store with another category.
5.
Owners Expectation:
Many shopping mall professionals say that the single most important factor in tenant mix is owners’ expectations. The shopping mall is owners’ creation and management of tenant mix is the most important supply-side influence on retail location at the micro-level. Shopping mall inevitably passes
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from the status of new assets, designed to accommodate state-of-the-art retail practice, and declines the degrees of functional obsolescence. In order to maintain asset value, managers need to monitor and adjust the tenant mix, but are constrained by the inertia of existing physical and legal arrangements. Shoppers can be attracted to shopping malls by many factors. The owners’ objective is for them to purchase goods and services, boosting retailer’s turnover and the share that they can take as rent. However, shopper’s motivations for visiting the mall may involve socialising with family and friends, browsing to gather information on possible future purchases and revealing boredom, rather than making purchases of goods and services. Shopping malls have transcended the role of purchase site to becoming a centre for many possible activities. An understanding of owners’ goals and objectives will enable the Mall Manager to make more informed decisions in all the aspects of management, specially leasing. This is accomplished by: • • Meeting with owners on regular basis Ascertaining the economic value of the base
Mall manager should meet at least once in a year with the owners to learn and acknowledge their expectations for tenant mix and leasing. • Leasing
1.
Meaning of leasing
Arrangements similar to rent agreements for the use of property (buildings, cars, office equipments and other items) in return for payments to the owner. The lessee (person taking out lease) agrees to pay a number of fixed and flexible instalments over an agreed period to the lessor, who remains the owner of the asset (item) throughout the period of lease. It is a primary function of all the mall managers to ensure that a full leasing program me is undertaken for their centres.
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• Finding a Tenant for your space
1. Leasing Plan This plan is simply an action plan to lease vacant space. It is important as it outlines the action that the Centre Manager will take to lease the vacant space. It should outline the details of the vacant space and philosophy on leasing the space. It should contain a positive plan out lining what action will need to be taken to secure tenants, who will undertake the action and when they are required to complete this by.
2. Action on all vacancies When leasing action is required on all premises, the following procedure is to be undertaken: • • Identify Target usages Identify Target Tenants within these usages
3. Details of Leasing Activity To Clients:
A thorough leasing details is to be provided to each client. The minimum requirement is monthly and the report should be included in the monthly management report.
4. Presentation of Vacancies:
Vacant shops have a negative effect on a shopping centre. It can lower the morale of retailer and reduce the appeal and appearance of the centre to the customers. All efforts must be made to improve the appearance of vacant areas. Hoardings should be erected and painted to
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match the centres’ colour scheme. Wording advertisement that the premises are available for could be painted on the hoarding.
Leasing Tools : Tools available to identify retailers: 1. Tenant contact database The tenant contact database contains the contact details for many retailers. Retail era be highlighted in many ways with the first method being by retail category.
2. Leasing brochure All Centre’s should prepare a professional leasing brochure at least every 18 months. The extent and cost of this can vary depending upon the leasing requirements of the Centre. Current vacancies and lease profile for 12 moths should be considered when preparing this document. If the centre has potential exposure to vacancies then an investment in professional marketing is cheap. All leasing marketing material is to be approved by the State Leasing Manager and should be developed in close consultation. Each centre should aim to improve what has already been achieved in other Centres
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3. Cold Canvassing This can be done either in person or by phone Phone canvassing ‘Script’ : “Good morning, my name is XYZ. I work for so and so company and I am the Centre Manager of mall management. We are currently looking for a category retailer for ABC Shopping centre. Would you have any interest in this opportunity?” If the potential tenant is interested, you should describe the Centre and Premises in simple and honest terms i.e. sub-regional centre of 15000 sq.m with K-Mart, Coles and 35 Speciality Shops. If the potential tenant remains interested, it is important to commit the potential tenant to action. There is a particular method to ask questions to ensure action.
a) When would you be able to visit the centre to view the site? Or better b) Can we make an appointment to visit the centre on Thursday? Not c) Give me a call if you want to view the site 4. Direct Mail Prepare a standard letter detailing the location and the strength of the Centre together with details on the vacant shop. Forward this letter to similar businesses. The “Yellow Pages” and the directory published by “Inside Retailing” are good preferences in addition to the Tenant Contact Database. 5. “For lease” signage Erection of “For Lease” signage on the shop front. Note: In Centres where there are a number of vacancies, the Centre Manager should choose the best two for signage. Too many signs give a negative impression. All signage within the centre must conform with the present Byvan signage format.
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If a shop front is in place, signage could be directly placed on the inside of the glass shop front. There are two standard signage packages. One refers to the centre management office and has a state office number. The second has only the state office number. The appropriate should be chosen on a individual basis. 6. Print Media Advertising Prior to this being auctioned, a budget must be approved by the Asset Manager responsible for the Centre and if required the Lessor. Advertising formats must use the Centre’s leasing/marketing image package or the standard package.
DOCUMENTATION TO BE USED WITH PROSPECTIVE TENANTS • Letter To Prospective Tenant Confirming Lease Details This letter is to be used to follow up any discussions held with regard to a site. It contains suitable details to enable a prospective Lessee to make a commercial decision with regard to premises.
This letter should always have a floor plan attached with the premises highlighted. It can also have details of the centre, if required by the tenant.
•
Lease Application Form This document is suitable only for independent size retailers. It requires the applicant to complete substantial detail. It is a best practice to use this document as an ‘agenda’
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for meetings with potential tenants. This will ensure that you cover all areas in a methodical way.
BEST LEASING PRACTICE The following are the best leasing practices: i. Vacancy Report/Leasing Report The leasing activity report is to be maintained & updated on a minimum monthly basis or as instructed by the Lessor. Centre mangers to liaise with leasing operatives to ensure accuracy & communication.
ii.
Meetings With Tenants Good business practice dictates that centre mangers should, whenever practicable, personally discuss all leasing matters with the lessee in the Centre manager’s office . if possible, a second member of the staff should be in attendabce at this meeting & sign off on file note.
iii.
Draft Lease To Be Available To Applicant A draft lease complete except for details of the lessee, term & rent must be held at the centre manager’s office before a shop is offered or advertised for lease. It should be available for prospective tenants to review if the prospective tenant requests.
iv.
Database Development
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All permanent leasing enquiries received at a Centre management office are to be passed on to the Leasing Department, so the prospect can be made aware of any opportunities in other Centers & added to tenant contact database for future reference.
v.
Misrepresentation Under section 52 of the Trade Practices Act & all relevant state Acts covering retail leasing, it is not acceptable to misrepresent information to other parties. Consequently, it is the responsibility of the manger who works in a mall to clearly state all facts in a true & correct manner. It is our responsibility to ensure as best we can, that applicants have a clear understanding of their responsibilities prior to them committing to a lease agreement.
vi.
Options The mall policy regarding ‘options’ is that they should not be offered at any time. There is no advantage to a Lessor by issuing an option. An option for a further term should only be offered when the lease negotiations cannot be finalized without one & with the written approval of the Lessor.
vii.
Bank Guarantees This is a document provided by the tenant’s bank to verify that the required sum of money has been put aside, in the landlord’s name, to be drawn down by the landlord, in the event that the tenant defaults on certain terms of the lease. The document must exactly match the lease in stating the name of the tenant & landlord. These original documents are valuable to the landlord & are usually kept by the landlord in a safe or
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bank. The only tenants who are exempt from providing bank guarantees to landlords are usually very well-known & respected major tenants or national chain operators.
viii.
Advance Rental Payments/Security Deposits Security Deposits are to be held by the Trust Account Department in the local office & banked into an interest-bearing account, if requested, for the term of the Lease or when otherwise required.
ix.
Area Of Premises –Measurement The correct area of a shop is important as it forms the basis of the outgoing charges & in some instances the base rent. It is important that unless scale drawings are available of an area already constructed those areas quoted to tenants are quoted. The measurement of any area needs to be carried out by a qualified surveyor.
x.
Fit Out Of Premises The fitout of premises is the single most important issue affecting the appearance of the interior of the shopping centre. A centre manager must make every effort to ensure that the tenants undertake to upgrade their premises on the renewing of the lease. At the commencement of a fitout commencement. This is to ensure that adequate services are available & is not , to be updated by the Lessee. All tenant fitouts are to be approved by the Centre Management & Asset or Leasing Manager & if required the Lessor’s Architect.
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xi. Fitout Prior To Lease Execution The mall policy is that, “No Lessee is to commence fitout or take occupation of premises, until such time as a lease is executed & returned or without Lessor’s approval. Fitout plans should also have been approved by Lessor prior to handling over the premises. Lessor’s works should not commence until such time as a lease is executed & returned or without Lessor’s approval. In certain circumstances & only with the Lessor’s written authority, a tenant may be granted permission to commence fitout prior to executing the lease. Prior to the Lessee must complete the standard letter of indemnity. Under no circumstances should a Lessee be allowed to enter into possession without first consulting the Lessor’s solicitors as to the possible implications of the Lessee’s proposal for occupancy.
Subleasing and Lease Assignment
The only legal way to get out of a lease is to sublet or transfer your lease. In certain cases, such as Joint Tenancy, there may be restrictions on the right to sublet or transfer the lease. Although the term sublease (sublet) is widely used, it only applies when the person who signed the lease intends to vacate the unit for a short period of time and expects to return to it afterwards. If the person who signed the lease does not intend to return to the unit (often referred to as "sublet with option to renew") then the lease must be assigned to the new tenant. Once the decision to either sublet or assign the lease has been made, the landlord should be notified in writing. Sublet :
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Only applies when the person who signed the lease intends to vacate the unit for a short period of time and expects to return to it afterwards. Under a sublease the landlord is not obliged to agree to an extension of the current lease with the sub-tenant. If the sub-tenant wishes for any reason to file a claim with the Regie du Logement, it must be done by the person that holds the lease and not the sub-lessor. While the landlord should be notified as to who will be replacing you in the unit, and for how long, it is the person who holds the lease who should work out the arrangement with the sub-tenant. Unless you intend to return to the apartment, it is better to assign than to sublet your apartment because in a sublet, the holder of the lease continues to be responsible for any damages to the apartment, as well as for payment of the rent for the duration of the sublease period. Procedure on how to sublet:
•
Start by placing an advertisement. You can use the Off Campus Housing Useful Links section for a list of other housing related sites. Draft an application form to get the prospective sub-tenant to fill out, that way you can check on them. On the application form you can ask the following information: Name Present address Reason for inhabiting Montreal? Tip: If they are coming to work here, the name of their supervisor, address of the company and the phone number (you can then to call up the supervisor to confirm if this person is actually coming to work with them).
•
•
• •
Once you find the right person send your landlord a notice of sublet. You will want to have a contract with the sub-tenant, you can buy a standard lease form and fill it out as if you are the landlord and the person is your tenant or draft your own contract.
•
Beware of scam (please view the left hand side bar for links to information on housing scams and frauds).
Transferring your lease: Applies when the person who signs the lease does not intend to come back to the apartment. The person hands over all his rights, to the assignee. Lease transfer releases you as tenant from all your rights and responsibilities to the apartment as of the date of the assignment.
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When a lease is assigned, the new tenant assumes all the legal rights and responsibilities for the apartment and can take action against the landlord directly. Please be advised that the landlord does have the right to ask you to cover the REASONABLE costs of a credit check on the new tenant. If you plan to assign the lease at the end of the school year, but intend to leave your possessions there during the summer, be warned that your rights to the unit will have been rescinded by virtue of the fact that the lease will have been assigned to someone else. Procedure of assigning a lease:
• •
Start by letting the landlord know about your intention. Place advertisement for your Sublet/Option to renew Or Lease Transfer. You can use the Off Campus Housing Useful Links section for a list of other housing related sites. Once you find the right person get him to fill out the Notice to Assign Your Lease The landlord has 15 days to give you an answer and can only refuse with a valid reason. Legally, a landlord may only refuse to give consent to a lease assignment for a serious reason (e.g. the new tenant will be unable to pay the rent). The reason for refusal must be communicated to the tenant within 15 days of receipt of the notice to sublet or assign.
• •
•
The Agreement of the Lease assignment is between you and the new tenant and you must give the new tenant a copy of your lease along with the Agreement of lease assignment.
Some technical terms that you will encounter when subletting or transferring a lease are:
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Term A Sub-lessor A sub- tenant
Description The occupier who sublets to the sub-tenant. The person to whom the occupier sublets the dwelling.
An Assignor An Assignee
The tenant who is assigning his lease. The person to whom the occupier assign the lease.
Sublease or assignment notice When you have found someone to whom you can sublet or assign your apartment, be sure to notify the landlord in the language of the lease. Your responsibility as a tenant If you are unable to sublet or assign your apartment, you are still responsible for paying the rent for the duration of the lease, even if you are no longer living in the apartment. Leaving the dwelling before the end of the lease could cause you to face legal proceedings. If you fail to fulfill your contractual obligations, the landlord could be entitled to damages, including rent for those months he or she was unable to find a new tenant despite all efforts in good faith, plus reasonable costs of advertising the newly vacated apartment. You could also find yourself liable for the Regie du Logement's application fee, which the landlord would have paid when he or she opened a file with the board.
Distinction between Sublease and Assignment : The right of possession may be transferred by the tenant to a third person either by sublease or assignment, provided the landlord gives consent when required. The substance of the transfer, rather than its form, may well determine the parties' liabilities to the landlord (see below). Thus, when the tenant retains some right of reentry onto the leased premises, the law deems the transfer a sublease. On the other hand, if the tenant transfers the entire leasehold
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estate, retaining no right of re-entry or other reversionary interest, assignment. From the point of view of the businessman, there is little difference between acquiring a leasehold interest by assignment and subletting a store. Most businessmen perceive the difference between the two relationships as a question of who gets the rent. A merchant understands that, if it acquires a leasehold by assignment , it pays rent directly to the landlord. Under a sublease, the subtenant pays rent to the tenant; and the tenant continues to pay the landlord. Of course, that is not the entire story. Some legal commentators explain the difference technically. It has been said that a lease is assigned when the tenant transfers his entire leasehold interest for all of the unexpired portion of the term. It follows then that, when a tenant transfers his entire interest for less than the entire unexpired portion of a term, it is technically accurate to call the relationship of sublease. It has been held that what the parties called a sublease of part of the premises demised by at least for the entire balance of the term wasn’t really a sublease but another animal called an “assignment pro tanto” These distinctions are foolish because they do nothing to help the parties define their relationships. However, the distinctions should be remembered because some crucial questions may turn on them. If a lease prohibits assignment but does not prohibit subletting, subletting is permitted. That is why it is essential to know the difference between a sublease & an assignment. There’s a surprise for those of you who apply Euclidean logic to lease drafting. The surprise is a line of cases that holds a clause that prohibits subletting of the premises does not prohibit subletting part of the premises. Most printed forms of commercial leases used in this country prohibit assignment & subletting as a matter of course. Many negotiations for store leases are concluded without the tenant’s attorney even attempting to change the assignment clause. Such a pity. Every attorney representing a tenant in a negotiation for a shopping centre lease should be alert to the possibility that his client may want to assign his lease someday. (In this context, I treat a sublease as if it were an assignment.) It must be remembered that, if a storekeeper cannot assign its leasehold, & if it cannot sublet its premises, the prospect of ever selling the business is rather dim.
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Even if the lease prohibits assignment & subletting, there may still be one avenue left for a corporate merchant to sell his business. If the principal stockholder of a corporate tenant sells all of his shares to someone who wants to buy his business, he is disposing of the corporation& his interest in everything the corporation owns. If a corporation owns the leasehold interest, the sale of the stock may do the job of selling the business without violating a lease clause prohibiting an assignment of the leasehold interest. Record of Tenant and Lease Details : When a tenant sings the Letter of Offer and before he commences trading, his tenancy must be accurately recorded on the centre’s database. • • • • • • • • • • • • • • • Shop number. Shop area (sq.ft.) Shop name Retail Category Lease term (including commencement and end dates) Base rent (Rs.) CAM Charges (Rs.) (Common Area Maintenance) Marketing Fund Contribution (Rs.) Base rent review dates and method of review CAM charges, contribution and exemptions Marketing find contribution method of calculation - % of base rent or fixed figure Revenue share % Lessee name and address Address and contact name for leasing matters Address and contact name for rent collection
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• Address and contact name and phone number for sales figure collection
Tenancy Schedule: The tenancy schedule is the main reference document for the mall and contains all tenancy details. Most landlords require the mall management team to audit the Tenancy Schedule against the individual leases on an annual basis to ensure that there are no discrepancies. Most automated systems rely on the dates and details recorded in the schedule to prompt events such as rent reviews therefore, an error in the documentation process can be costly to the landlord, if a rent review is not recorded correctly or even missed.
Lease Preparation: Normally, the mall will have an appointed legal representative or solicitor who will prepare leases on the instructions of the Mall Manager. This is to ensure total adherence to local and current lease legislation and although costly, can save the owner significant expense in potential damages, if lease documentation is not correct. The manager will provide all the relevant details, including special lease conditions to the solicitors and will be required to thoroughly check the lease for accuracy, prior to it being forwarded to the tenant for signature.
Lease Renewals: The renewal of a lease to an existing tenant within a mall management is an individual decision. Each renewal must be examined taking into account the actions outlined in the business plan and the current situation.
It is very important that no informal comment is made prior to any formal lease renewal decisions as it may give the existing lessee the wrong impression of the impending lease expiry and subsequent renewal.
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The Lessee may be required to give the written notice of the Lessor’s intention 6-12 months before expiry of the Lease. The completed form should be provided to the Lessee within either one (1) Month of receiving the notice or six (6) months before the end of the lease, whichever is lower.
Rent Reviews: In India, the majority of leases are for the term of three (3) years. Some leases, as in the case of anchors, may have a longer term. The method of determining the increases is agreed during the negotiation and will take the form of market review, fixed increases or consumer price index (CPI = inflation ) increases. In many instances. It is a combination of two or more of these methods: Year 1 – Rs. 45000 Year 2 – Year 1 + CPI Year 3 – Year 2 + CPI Year 4 – Market Review Year 5 – Year 4 + CPI
All Commercial leases other than those of a very short-term contain some form of rent review. The most common methods are : Review to Fair Market Value (FMV) : Fair Market Value rent reviews are by their nature open to option and consequently, a degree of negotiation frequently arises. The best method of negotiating a FMV rental is made by holding a meeting with the Lessee, prior to formally advising them of the increase.
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It is critical that FMV rent reviews are well-researched as most leases allow for the Lessee to appoint an independent specialist Retail Valuer, should they not agree with the new rental. Increase to the Consumer Price Index (CPI)
The methods for calculating a CPI increase is as follows :
Example:
Shop 40 Wendy’s ice cream Current Base Rental: Rs. 27,600.50 Anniversary of Lease 1st December
New Base Rental = (September CPI Current Year * Base Rental ) / September CPI Previous year
= (125/120) * 27,600.50
= Rs. 28,750.52
Monthly Holdover: If a lease is not to be renewed, the landlord and the tenant may agree to maintain the lease arrangement on a monthly holdover basis. This agreement is usually ended by either party giving one month’s notice in writing. This is usual when a landlord plans to redevelop the centre or part of centre and cannot provide security to tenure to the tenants by way of fixed term lease.
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Determination of lease at the end of term: The lease will specify the timing for notice, either by the landlord or the tenant that the lease will not be renewed. Usually it is 3 to 6 months before the end of the lease. The lease will also be specific about the conditions in which the tenacy will be handed back to the landlord. An inspection is arranged and when it is arranged that the tenancy is in a satisfactory condition, the bank guarantee is returned to the tenant. A tenancy may end in a number of ways. The term may expire; a notice to quit may be served by either party; either party may exercise their option to use a break clause; the landlord may exercise his rights to end (forfeit) the lease as a result of your breach; or you may surrender the lease with the landlord's consent. However, you as the tenant may have legal rights (unless you have contracted out) to renew a tenancy for premises which are occupied for business purposes, and which has not been excluded from protection. The law generally prohibits contracting-out but such an application may be permitted if the lease is for a fixed term and a joint application is made to the court by both the landlord and the tenant. The Mechanism for Renewal or Termination of a Protected Tenancy If the landlord wishes to end a protected tenancy he must serve notice on you, as the tenant, between 6 and 12 months before the termination date in a form which complies with the requirements of the Landlord and Tenant Act 1954. If you wish to renew the tenancy, rather than waiting for the landlord to serve this notice, you may wish to take the initiative, and within 6 and 12 months before the termination date, serve notice on the landlord requesting a new tenancy after the current one ends, again using a prescribed form. If you serve a counter-notice to the landlord that you are unwilling to give up possession, it must be served within two months (failing which your rights to a new tenancy are normally lost). If the landlord gives a counter-notice to your request for a new tenancy the notice must state his grounds for opposition and be served within two months, failing which he loses his right
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to oppose the grant of a new tenancy. Unless you agree the terms of a lease in the meantime, you must then apply to Court within 4 months of the original notice of your counter-notice for a new lease - this is so even if the landlord does not object to a new tenancy. If you do not, your right to a new tenancy is lost. After you have applied for a new tenancy, the original expiry date no longer applies and the existing tenancy is deemed in law to continue at the old rent until three months after the proceedings have ended. However, the landlord can in the meantime apply for an interim rent to be set by the court. The time limits are strictly applied and professional advice should be followed from the outset of the procedure described above. Grounds for Refusing a Renewal of a Tenancy A landlord can oppose your application for a tenancy on certain defined grounds including your failure to repair; persistent delays in rent payment; breaches of other obligations; where he can offer you suitable reasonable alternative accommodation; where he has a firm intention to demolish or reconstruct the premises; or where he has held his interest for 5 years and he has a firm intention to occupy the premises for his own business or residence. Compensation for Non-Renewal When a lease is terminated, you may face the loss of the goodwill that you have built up and costs of relocation. If the landlord successfully objects to grant of a new tenancy because of a firm intention to demolish the premises or develop or occupy the premises himself and, as a result, you fail to obtain a new tenancy or withdraw your application for a new tenancy, then you may be entitled to compensation. The amount of compensation payable is a multiple of rateable value (usually one), but this multiplier may be doubled if the same business tenant has been in occupation for 14 years or more. The landlord may try to exclude your right to compensation but this clause will not be effective if you have been in occupation more than 5 years prior to quitting possession. You may also be entitled to compensation for improvements you have carried out at the premises with the landlord's consent.
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The Terms of a New Tenancy If you have a right in the lease or other contractual option to renew the lease, the new terms will generally be negotiated by your respective professional advisers based on the old lease. Alternatively, the Court will have granted you a new lease under the statutory tenancy renewal procedure. Hopefully, you and the landlord can then agree the terms of a new lease between yourselves and in practice this is the normal route. However, if this proves impossible, the Court will have to decide. You are entitled under a Court order to a new tenancy of your property at the time when the Court makes its decision. The maximum term is at the Court's discretion, but cannot exceed 14 years. You can request a shorter term or the landlord can request it if he has unfinalized redevelopment plans. Other terms of the lease will normally be similar to those in place in the existing tenancy. Notice of termination: Landlord must give tenant written notice of termination of the lease. The notice must include the date of termination; the reason for the termination, with enough detail so that the tenant may prepare a defense; and if termination is due to failure to pay rent, the notice must include the dollar amount of the balance due and the date the computation was made; and advice to tenant that if tenant remains past the termination date, the landlord may seek to enforce the termination only through court action, and that if judicial proceedings are instituted, tenant may present a defense. The notice must be sent to tenant by first class mail, properly stamped and addressed to tenant at his address at the project, and with proper return address. A second copy must be delivered in person to any adult answering at the door of tenant’s unit. If no adult answers the door, the notice must be left under the door or attached to the door. When termination is based on "material non-compliance" with the rental agreement or failure to carry out obligations under state or local landlord-tenant law, then the time of notice must comply with the rental agreement and the law
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When termination is based on "other good cause", the termination will occur only at the end of a rental term and in accordance with the rental agreement, and in no case may tenant have less than 30 days' notice. In addition, for "other good cause" termination, tenant must have received a prior notice stating that his specific conduct, if continued, would constitute a basis for termination. That prior notice must be served on tenant in the same way as the notice of termination. Tenant's failure to object to the termination notice does not constitute a waiver of his right to contest the termination in a subsequent judicial proceeding. Evictions: Landlord may seek to evict tenant only by complying with these regulations and with state and local laws governing eviction procedures. State or local law may give to the tenant procedural rights beyond those provided in these regulations, except where the state or local law has been preempted by federal law. Rent increases and other changes in the lease : The landlord may change the terms and conditions of the rental agreement, provided he has received approval from HUD to do so. Tenant must be notified of any changes in the lease in the same way that he would be notified of termination of the tenancy, including at least 60 days’ notice in Baltimore City and at least 30 days’ notice in the rest of the state. Assignment of Lease: Occasionally a tenant wants to sell his business to a suitable buyer. The landlord cannot reasonably withhold agreement to the sale of the business, if the purchaser can demonstrate that he is an experienced and a respectable retailer with enough financial support to maintain the business in a professional manner. In these circumstances, the lease will be assigned to the purchaser. Sometimes the landlord will not release the vendor( the assigner) from his responsibility under the lease and he will remain as a guarantor for the performance of the buyer, providing the landlord with insurance that the tenant will perform to the term of the lease
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Insurance certificates: It is important that the landlord and tenant have appropriate insurances to guard against risk and loss. The tenant must provide the insurance certificate before being allowed to commence trading in his tenancy. Lease surrender Lease surrender should only be carried out with written authority of the lessor. A lease which has not expired and for whatever reason, the tenant that has vacated will need to be surrendered, in order for a new lease to be issued on that premises. General Procedures: The surrendering of a lease is a simple matter and the procedure is outlined below: • • • Written approval obtained from the Lessor for the surrender of Lease All rental and other amounts outstanding up to the date of surrender to be collected. Instructions issued to the Solicitor to engross a lease surrender.
Under Clause Change Changes in a usage clause should only be considered in certain circumstances. Written approval by the Lessor would be required. License Agreement License Agreement should be used whenever a tenant is in occupation of a space and is not covered by a lease, monthly tenancy or a casual leasing agreement. License agreement can be issued by the Centre manager without the need for a solicitor. The lessee would be required to pay all costs. Aged Debtors The aged debtors report will provide the Mall manager and admin manager with up to date account of outstanding rentals or arrears. Arrears management is a vital component of the manager’s role and is a great risk factor for the Centre’s Owner. In centre valuations, the
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arrears are taken in to account – if the tenants are not able to pay the rent, it could mean that the Centre is not viable and can reduce the overall value. The aged debtors report will list those tenants in arrears of rent, showing how many months they have owed rent, whether it is only the current month or a back – dated amount.
Rent collection Collection of a rent is an important function of shopping centre management. It is also a frustrating, time-consuming and difficult factor of shopping factor management. Usually rent is due from every retailer on the 1st of every month. Rent collection includes all monies payable under the lease(i.e. base rent, CAM, promotion key etc.). Mall management reviews all recurring charges and calculates for any special charges. Management will normally issue tax invoices to all retailers within last week of each prior month. Once retailers pay their rent, it is necessary to receipt these monies into the applicable area correctly- each centre owner/ agent may have different ways of doing this depending on the system they use, however the key is accuracy. Office management It is prudent to have an organized and efficient centre management office as this is the hub of the operation. In the office, mall management staff will be called upon in one of the two ways: • • By telephone By visiting the office
It is therefore, very important that the telephone be answered promptly and professionally and that office and all staff are always presented in a clean and tidy manner. This will ensure the perception to all stakeholders is one of professionalism, efficiency and overall high standards. It is also vital theat any material of a confidential nature not be left in an area that is visible to someone walking into the office. Communication between members of the centre management team when some are in the office and some may be out in around the centre
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usually via two-way radio. Each system varies slightly but a general guideline of the two-way radio protocol will be issued to you. Mall management will often need to send out general “memorandums” to all retailers – it is important to a copy of every letter is kept for our records and usually , security will assist in the delivery of letters to each store.
Petty cash will normally be a required in a centre management office to pay for items such as coffees/food for meetings, stamps and parking fees. Petty cash reconciliation must be completed when required and in the meantime, receipts for all items must be collected and retained. Normally , you will have petty cash tin which will have all petty cash money and receipts and this tin will be locked at all times , other than when is use.
Keys are something that, unless properly managed, can quite easily get out of control. Therefore, it is important to set up key registers. • Permanent issue keys- Generally given to mall management staff and security / cleaning staff and usually includes office key and master key to all common area locks; • Temporary keys- Generally signed in and out to contractors and usually includes keys such as electrical rooms, fire control rooms etc. Finally, keeping a record of insurances is another aspect of office management. It is prudent to have registers set up for both tenant and contractor’s insurances’ - theses registers will ensure you have all relevant parties insurance certificates on the field and will allow you to monitor when each individual’s insurance is coming up for expiry and therefore enables you to chase for updated insurance certificates.
Some of the letters attached to annexure includes: • • • Letter to a prospective lessee confirming lease details Letter requesting a meeting with lessee Rent review CPI
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• • • • Lease advising lessee of new market rental Rent review confirmation to guarantor Letter confirming change of usage After-hours contact list etc.
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