Reshaping the landlord and tenant relationship

I had recently written about the future of shopping centres and subsequently about how the form of lease we have worked with for years may need to change to reflect this. One of the key elements running through both articles was the need for closer collaboration between landlords and tenants. Daniel Abrahams, our co-head of real estate at Memery Crystal recently moderated a Bisnow webinar on landlord and tenant engagement. A number of matters came up during this event that particularly resonated with me:

• Price lists – The idea that there could be a menu and corresponding price for each type of lease and the provisions in such lease: an annual rent of £100,000 per annum for a 5 years term, £120,000 for a 3 year term, add a tenant break for £10,000 a year, etc. The sort of clarity that this could provide can only assist tenants as they wrestle with cash forecasts and business plans, and may make more start-ups feel comfortable to venture into a bricks and mortar presence.
• Upwards and downwards rent reviews – The word I am most frequently hearing in respect of the future of leases in general is “collaboration” and a shift in the risk matrix between a landlord and a tenant. If landlords will look at tenants in a more holistic way in the future will they agree to share the risk of the rental market moving against them? Perhaps we need to commence with a mutually acceptable first step; perhaps introduce a base rent threshold i.e. even if the market moves the rent will not reduce to below “£” thereby guaranteeing the landlord a minimum return?
• White box units – the idea that a unit is handed over to the tenant with a basic fit-out (possibly with the tenant paying the landlord an additional fee for personalising this beyond a basic specification). This could avoid or reduce the need for a tenant to lay out capital expenditure on day one, and could allow a quicker turnover of tenants therefore reducing voids for landlords and allowing flexibility and a quicker turnaround in tenants to reflect changes in consumer tastes and seasonal variety.
• Investing in tenants – Grosvenor Britain & Ireland have completely embraced this and have been so bold as to create a fund to invest directly in tenants and have recently acquired a stake in Roland Mouret via the fund. As James Raynor, Chief Executive of Grosvenor put it in this recent Times piece “Ultimately, if you are the owner, you want the occupier to be very successful. You therefore want to be part of that success”. If an investment from bricks and mortar is likely to produce a somewhat more muted return why not move up the risk curve and assume a more venture capitalist role; the ultimate demonstration of confidence in your tenants?

These were just a few points that were discussed on the Bisnow webinar but they demonstrate how the relationship between landlord and tenant is being re-written as one of mutual co-operation and collaboration. Let us hope more of these innovative ideas come to fruition.

Disclaimer: We at Memery Crystal (and our parent company RBG Holdings plc) support and encourage free/independent thinking in relation to issues which are sometimes considered to be controversial subject matters. However, the views and opinions of the authors of articles published on our website(s) do not necessarily reflect the opinions, views, practices and policies of either Memery Crystal or RBG Holdings plc.