Top 5 Lease Management Questions

Property Works’ lease management experts tracked questions from clients and non-clients alike during the month of May. Below are the top five most frequently asked questions, along with their responses. We hope this addresses issues on your mind, too!

Q:  “Major changes in our location have significantly reduced the amount of walk-in traffic (and sales) at our store. Our lease does not include a termination clause, so what are our options?”

A:  “Negotiating lease terms that are tied to sales can ensure you have the ability to terminate a lease should times get bad. But if that isn’t the case, you may still have options, depending upon your value to the landlord. If you’re a good tenant who pays your rent on time and the space will be hard to fill, you’re in the in the driver’s seat. If they’re not willing to let you out of the lease, consider other factors that may improve your financial outlook like a rent reduction, tenant improvement allowance or reduction in CAM charges. Remember,anything is negotiable…even midterm.”

Q:  “What’s the best way to compare locations within our portfolio to determine whether we should stay or go?”

A:  “Most tenants consider sales as the primary reason for remaining in a location, and if the money is pouring in, that may be the case. However, the decision is far more complicated, with most tenants focusing on EBITA—earnings before interest, taxes and amortization. Once those factors are understood, it’s easier to compare locations to determine whether it’s time to renew, renegotiate or relocate.”

Q:  “How important are estoppels and are we required to use the one provided by our landlord?”

A:  “Estoppels are legal documents most commonly used during the due diligence phase of an acquisition or loan application to clarify the relationship between the tenant and landlord. Once executed, the estoppel provides important protection against any of the signing parties from contesting the information contained within the document. Check your lease to determine if you’re required to use a specific estoppel form. Otherwise, you can probably use one from your own company. A word to the wise… When completing the estoppel, only offer information that is specifically required by your lease. Providing too much information may open you up to unnecessary scrutiny.”

Q:  “We recently discovered that our landlord has been overbilling us for CAM expenses. How long do we have to dispute the charges?”

A:  “The amount of time allowed to review and dispute CAM expenses should be outlined in your lease. Most landlords require that this be done within 60 days, and if you miss their deadlines, they’re under no obligation to make adjustments in your favor. But it never hurts to ask. Going forward, it’s important to establish a process for reviewing all CAM charges against the list of allowable expenses detailed in the lease to ensure billing accuracy. If you’re responsible for a pro rata share of CAM expenses, consider whether any major changes have occurred that warrant an adjustment like building expansions or changes in the retail mix in your location. If that’s the case, provide your request in writing to the landlord within the allowable time period.”

Q:  “What type of cost savings can I expect when Property Works handles our turnkey lease management operations?”

A:  “That’s a difficult question to answer because every portfolio, industry and client is different. From 20 years of experience, however, we can say that when lease-related costs are carefully and consistently tracked and managed, savings can range from 4 to 20 percent.”

If you have questions, please reach out to us today! Clients are encouraged to contact their relationship managers directly. If you’re not a client, send your questions to Karla Finnegan