With the end of the financial year close by naturally comes the beginning of the new financial year, so what about your lease year?
The Lease is an asset of your business, and should never be treated as just a set and forget contract as there are numerous activities and events that take place each year.
The lease is a living contract.
With the ever growing sophistication of Landlords, even in small shopping centres, here is an example of a typical a year in the life of your lease:
Monthly- sales data provided to Landlord
-MAT (moving annual turnover) is collated and updated
-OCR (occupancy cost ratio) is collated and updated
(Centres can track your performance better than a you do.)
30 days before end of financial year
- Outgoings budget/estimate for next financial year is sent to Lessee advising new charges
30 days before lease anniversary
- Annual rent review is forwarded to Lessee (this may vary depending on review type i.e. CPI)
Beginning of financial year
- Rent Invoice is updated with new outgoings charges
Beginning of new lease year
- Rent invoice is updated with new rental from annual review
- Request sent to Lessee to top up bank guarantee/security from rent + outgoings increases
- Request sent to Lessee for new Certificate of Currency for insurances and indemnities
- Request annual Sales Audit/Statement (depending on turnover rent clauses)
90 days after financial year
- Outgoings Audit is provided
- Outgoings recovery and adjustment provided (up or down)
120 days after financial year
- Rent invoice reflects outgoings adjustment from previous financial year
Other activities: (depending on premises, use and lease terms)
- Quarterly air conditioning service provide to Landlord
- Annual pest and vermin inspection and service provided to Landlord
- Annual premises maintenance and fit-out inspection report
- Monthly (i) extended trading hours charges
(ii) Electricity meters read and billed
(iii) Water meter read and billed
And the list goes on.
Along with all this, the Landlord is constantly reviewing comparable rents and performances (your sales), not to mention the critical path of your lease (time to lease end).
Now imagine what the Landlord is doing when your lease term is nearing the end of its critical path?
With all this data and resources even the small shopping centre Landlords are planning what your next lease will look like, quite often up to 2 years before its due!
Proactive rather than reactive (end of lease) management of your current lease as well as strategic planning for your next lease has become more important than ever.
Bankers are constantly learning to understand how to continue lending (including current credit facilities) to Retailers with the risks associated under a retail shop lease becoming more prevalent.
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