Retail Real Estate Advocate Offers CFOs a Solution
“Who Agreed to this Language?”
How many times has a retail CFO been handed real estate leases containing terms which cause him or her to ask, “Where did these provisions come from? Did we understand the costs of compliance?”
The results of not reviewing lease terms prior to execution can morph into a lot of headaches and difficulties that come with hefty price tags. In fact the cost of poorly designed leases can be so damaging to bottom line performance, that one prominent lease administration executive is advocating a new, proactive lease process that can help retailers avoid unfavorable lease clauses and eliminate negative surprises for tenants who may have not budgeted in a given lease year.
Moe Laliberte, recently retired vice president of real estate for Dollar General, is encouraging lease executives to adopt proactive reviews of lease language by a lease administration specialist prior to the lease being executed. He explains, “Our retail industry currently uses a process whereby lease administration specialists typically receive leases only after the property agreements have been executed. This opens the door for rent commencement date errors, significant overcharges to the tenant, and vague or gray areas in the lease language resulting in disputes with the landlord and costly legal action–more money siphoned from the bottom line.”
How does this new process work?
Co-founder of the National Retail Tenants Association (NRTA), Laliberte explains that the discussion of a proactive lease model is one of over 50 best practice topics to be discussed at NRTA’s education forum this September. A proactive lease model encourages reviewing lease language by the lease administration department prior to the lease signing. The first step in this process is to submit a letter of intent to review. Reviewing a lease just prior to the document signing is too late; as soon as the initial draft of the lease is prepared, the retailer should submit a letter of intent to review.
Proactively reviewing lease language strengthens the retailer’s negotiation position with landlords while avoiding costly pitfalls. However, if this language hasn’t been discussed and agreed to prior to executing a lease, it’s going to be very difficult to challenge should problems arise. The most important thing a concerned CFO can do is educate the deal makers where lease language directly affects the costs to the tenant over the lease term.