Co-opetition for better results. When is it time to leave your co-working space? How healthy is your HOA?
LPC (Australia & New Zealand)
LPC provides conflict free advice and representation to commercial occupiers operating in Australia and New Zealand.
In this edition:
Pandemic Takeaway 5 - How commercial tenants can increase their negotiating power
In article 4 of this series, we suggested that a new leasing norm is needed to support economic recovery from the pandemic's impacts.Here we reflect on the obstacles that tenants face in pursuing this new norm, and how they can overcome the tenant disadvantages of fragmentation and asymmetrical access to information.
Prevention is better than cure??
The statement is about the importance of considering business risks and requirements before negotiating lease terms for retail, office, or industrial tenants. This helps to prevent unfavourable outcomes such as unexpected rent escalations, increased renewal options, and unplanned maintenance costs. Negotiating strong tenant protections before the ink is dry on the lease agreement is crucial to mitigate these risks. However, it can be challenging to make changes to lease terms once they are established. The statement highlights the importance of adopting a preventative mindset during lease negotiations and the need for thorough analysis of business risk to focus negotiations on critical terms. The key message is that preventing unfavourable lease terms is better than trying to cure them after the fact.
Co-opetition: a strategy to strengthen the tenant's Voice in commercial leasing negotiations
Commercial tenants often start on the back foot when it comes to leasing negotiations, with landlords holding the advantage. But what if tenants could come together and negotiate from a position of strength? This is the idea behind co-opetition, a strategy that involves collaboration between business competitors to achieve mutually beneficial results.
We promote co-opetition as a way to increase tenant influence in commercial leasing negotiations. By bringing together tenants through groups such as franchisors and associations, we can make leasing expertise more accessible and affordable to a wider range of tenants, including SMEs and small retailers.
Through an online platform, we work with organisations such as the National Retail Association and the Restaurant and Catering Association to educate and inform members about leasing matters. The platform provides tenants with the knowledge and tools they need to negotiate tenant-friendly lease arrangements and avoid the traps that landlords often lay.
Co-opetition is a sensible strategy for tenants who want to have a stronger voice and influence in commercial leasing negotiations. By working together, tenants can influence lease norms in a way that benefits everyone. The bottom line is that co-opetition can help level the playing field for tenants.
One strong voice is better than many weak voices
The current commercial leasing norm favours landlords, transferring ownership risks to tenants without corresponding benefits. To change this, tenants need to come together and strengthen their voices to negotiate a lease norm that provides more assurance of utility value and strengthens landlord obligations.
Tenants diminish their negotiating power by handling lease negotiations on a one-off basis. Multi-site tenants can increase their leverage by working together and communicating their business strategy and accommodation needs to landlord executives. By doing so, they can elevate the discussion from a single site to a multi-site and from tactical to strategic.
At the sector level, tenant co-opetition through one voice can influence the critical aspects of the leasing norm that need to be changed to support tenant enterprise and contribute to economic recovery for the entire sector.?
Remarkably, most tenants are not challenging long-standing lease norms, especially considering that tenancy arrangements can either be a handbrake or an accelerator for economic recovery. Change is overdue, and tenant co-opetition and repeated clear articulation of the need for a new lease norm will stimulate a new norm and recovery.??
SME Focus: Is it time to move out of your co-working space and into a leased office?
At LPC, we understand that shared office spaces can become limiting for businesses as they grow and require more privacy and space for their operations. In addition, the flat rate charged for each new employee in a shared office space can become challenging to manage from a cost perspective.
In such cases, leasing a dedicated office space offers several benefits that make it a wise business decision.
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Culture and Identity:
Leased office spaces provide businesses with the flexibility to customise the physical environment to align with their corporate culture and work style. This includes the ability to choose the colour scheme, furniture, and location, which can positively impact productivity and brand image.
Productivity:
A dedicated office space enables businesses to create an environment that supports their team's work style and needs. This includes access to essential tools and equipment, as well as a suitable arrangement for focus and collaboration.
Recruiting Talent:
A dedicated office space can serve as a valuable asset when attracting top talent. It demonstrates a commitment to the company's future and growth, which creates a positive perception amongst potential hires.
Branding:
A leased office can also serve as an extension of the business's branding, making a lasting impression on potential clients and customers.
The appropriate time to consider a leased office space depends on several factors unique to each business. However, some common indicators include market validation, steady operations, investor interest, and a growing employee count ranging from 5 to 15 people.
As the renowned management consultant, Peter Drucker, once said, "Culture eats strategy for breakfast." Investing in a dedicated office space is a strategic decision that helps to establish and reinforce a positive corporate culture and identity.
Do you know what a tenant-friendly Heads of Agreement looks like?
Our FREE TOOL - The HOA Health Check - will help you negotiate a ‘HOA’ that works for the business.? It also points to common mistakes made by tenants in relation to a ‘HOA’, to help you ensure you do not make the same mistakes in your current and /or future lease negotiations.
Access it HERE.
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