Business Before Space & Place | Lease Management Strategies

Business before space and place!

The pandemic accelerated the WFH and online shopping trends, fuelling uncertainty in CBD real estate markets.? This uncertainty generated significant opportunities for office and retail occupiers to improve and de-risk their accommodation commitments by reviewing, renegotiating, and repositioning these arrangements.? However, together with real estate uncertainty and change comes the potential for increased business risk unless the long term accommodation strategy is aligned with the long term business outlook and risks. This is why LPC advisors focus on ‘business before space and place’, implying the need to ensure accommodation arrangements and commitments are underpinned by well informed judgement.

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Eleanor Roosevelt counselled that is wise to “Learn from the mistakes of others. You can't live long enough to make them all yourself”. The pandemic highlighted a common lease negotiation mistake that tenants do well to learn from into the future. In summary, almost all commercial tenants across Australia had lease terms that required uninterrupted tenant obligations notwithstanding impaired utilisation of the leased premises due to lockdowns and related responses to COVID-19. The mistake was, and is, inadequate attention to linking lease obligations to utilisation, this being just one example of the need to more thoroughly consider ‘business before place and space’. ?

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At LPC we encourage tenants to ensure the foundations for place and space commitments are well laid by undertaking a rigorous long-term accommodation strategy (‘LTAS’) exercise. We advocate this is done periodically, and well before a trigger event such as a lease expiry. ?The LTAS process is designed to draw out the long term business outlook, strategies, and risks and to ensure the LTAS adequately considers the workplace trends and the real estate market outlook into the future.? As tenancy commitments are long-term and binding, the LTAS aim is to achieve guiderails for negotiating a landing point that represents the ‘right place, the right premises, and the right commercial terms’, and that this landing point works from day 1 through to the end of the lease term.

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Stephen Covey said one must “begin with the end in mind”, sound advice for an occupier making long-term accommodation commitments. A well informed LTAS begins with the end in mind and is a solid foundation for negotiating accommodation arrangements that play a part in future-proofing a business.

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The complexities of lease management: solutions and strategies?

Leases are the backbone of a tenant's relationship with their landlord. These complex agreements determine not only the financial implications but also the implicit business risks that a tenant signs up to.. In an ever changing and often challenging commercial real estate environment, tenants find themselves responsible for managing their leases to mitigate business risks, and ensuring compliance with a myriad of regulations and deadlines.

Many tenants may choose the do-it-yourself (DIY) route when it comes to lease management, but is it truly the best option for maximising the value of their real estate assets? We explore the benefits of professional lease management services and the potential pitfalls of the DIY approach..?

Navigating the intricacies of lease agreements

Lease management is a multifaceted and intricate process that goes well beyond the simple act of securing a physical space for conducting business. It involves a sophisticated interplay of various elements that have a profound impact on a tenant's operations and financial health.

At its core, lease management encompasses the following key aspects:

Lease negotiations: The art of negotiation plays a pivotal role in securing tenant-friendly leases .This is not only about the rental amounts, but also crucial factors such as lease duration, escalation clauses, landlord obligations, utilisation provisions and tenant improvements. Skilled negotiation can result in substantial cost savings and tenant-friendly terms that align with a tenant's business goals.

Property strategy: Lease management is intimately connected to an organisation's broader accommodation strategy. This includes assessing the organisation's spatial requirements, the suitable locations, and alignment with business objectives as well as future growth plans. A well-devised accommodation strategy can optimise the use of real estate assets and enhance the overall efficiency of operations.

Property acquisition: Choosing the right place and space is a critical decision that should align with a tenant's operational needs and long-term plans, as well as allow for flexibility as business needs change. Professional lease managers are well-equipped to identify opportunities, conduct market analyses, and guide tenants toward spaces that offer the best value and potential for growth.

Lease compliance: Lease agreements come with a multitude of obligations and deadlines. Compliance with these terms is not merely a matter of avoiding legal entanglements but is also central to financial prudence. Missing deadlines or neglecting compliance requirements can result in penalties, disputes, and, in extreme cases, eviction.

Renewals and strategic planning: It's crucial for tenants to stay on top of lease renewals and terms. Knowing when to either renegotiate existing leases or explore new properties can significantly impact a tenant's bottom line and future growth. Professional lease management services excel in providing the insights and strategic guidance necessary to make these decisions at the right time, ensuring that tenants maintain flexibility and can leverage opportunities in the dynamic commercial real estate market.

The DIY Approach

While the DIY approach is a common route chosen by many tenants, it can inadvertently lead to a series of challenges and risks. Without the guidance of professionals, tenants often find themselves in uncharted territory, where the complexities of lease agreements can easily obscure crucial details. This DIY approach poses several notable risks:

Overlooking critical details: “Lease agreements can be laden with legalese, making it easy for tenants to overlook or misunderstand vital clauses,” says LPC Perth Director John Adcock .” Overlooking such details can lead to disputes or unexpected financial burdens, as tenants may find themselves obligated to undertake costly repairs or renovations that weren't apparent initially, as an example”.

Legal and financial risks: The lack of legal expertise can expose tenants to significant legal and financial risks. An improperly negotiated lease can lead to higher costs, unfavourable escalation clauses, and a host of other unfavourable terms. Such arrangements can strain a tenant's financial resources and impact their profitability.

Missed opportunities: Professional lease managers possess market knowledge and insights that can uncover opportunities for cost savings or better terms. “When tenants manage leases in-house, they often miss out on potential concessions, incentives, or spaces that align better with their strategic objectives,” says John.

Operational distractions: Managing leases in-house consumes valuable time and resources. This can distract tenants from focusing on their core business operations and strategic growth initiatives, impacting overall efficiency and profitability.

In summary, while the DIY approach may seem cost-effective in the short term, the long-term consequences of overlooking critical details and missing out on opportunities can be detrimental. “In contrast, professional lease management services, such as those provided by LPC, offer tenants the advantage of expertise, risk mitigation, and the optimisation of their real estate assets, “ says John.?

There's still time to sign up for independent Module 2 of our popular online Lease Management Course " being held on Tuesday 8 November!

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Module 2: Is your lease tenant friendly?

Learn to assess your lease so that you can identify and mitigate risk. By attending you will be better placed to negotiate tenant-friendly lease terms that help to future-proof your organisation.

Who Should Attend?

This course is designed for professionals and business leaders who are directly or indirectly involved in the leasing process. Whether you're a new tenant navigating your first lease, an established business looking to renegotiate terms, or a manager keen to understand the nuances of your organisation's rental agreements, this course offers invaluable insights for all.

Modules are standalone and can be taken individually

Registration Fee: $100 incl GST

Date: 8 November 2023

Time: 11:00 – 12:00 AEST?

REGISTER BY CLICKING BELOW

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