Why do commercial tenants need a louder voice?
LPC (Australia & New Zealand)
LPC provides conflict free advice and representation to commercial occupiers operating in Australia and New Zealand.
"Whoever controls the narrative controls the people." - Abhijit Naskar
The originator of this quote is a celebrated neuroscientist and author of over 100 books.
Although I doubt he had commercial leasing in mind, his observation is applicable as the supply side dominates the narrative and controls how most of us think about what is normative for an office, retail, or industrial lease. Perhaps the most obvious evidence of this is that when someone talks about the outlook for commercial real estate being positive, this means the outlook is positive for the investor (not the tenant) with an uplift in asset values and rental income. From our perspective as tenant advisors, the heart of the economy is tenant enterprise, and tenants need a louder voice to influence lease norms to support tenant enterprise in good and bad times.
Why is the commercial tenant's voice not heard?
"When the powerful control the narrative, they hold the reins of perception." - Jop Helm
The structure of the commercial leasing world is such that the voice of the supply side is strong, and the tenant's voice is weak. While the supply side has diverse parties, including property investors, institutions, developers, and leasing agents, they unite in pursuing predictable, risk-free, and escalating rental income. The outworking of this structure includes the creation of powerful associations that protect supply-side interests and supply-side control over the narrative.
On the other side of the fence are the commercial tenants who are structurally disadvantaged in that they are fragmented, focused on their business (not property), and have limited access to leasing information in an industry that lacks transparency and is characterised by advisors with conflicted interests.
The perception of what is normative for a commercial lease is formed in this context, and this perception is reinforced by the fact that the accepted practice for the development of a lease agreement is that the originating document is issued by the property owner's solicitor who is tasked with de-risking the arrangement for the owner. There is so much more to say about this issue, but this summary describes the challenge commercial tenants face when it comes to increasing the tenants' voice and influencing the commercial lease narrative. The pandemic highlighted how the accepted narrative and the accepted lease norms did not protect tenants who experienced impaired use of their leased assets, evidencing the need for commercial tenants to increase their voice.
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How can the commercial tenant's voice get louder?
"It only takes one voice, at the right pitch, to start an avalanche." - Dianna Hardy
At LPC, we are committed to helping commercial tenants increase their influence on lease norms by overcoming the disadvantages of fragmentation, limited access to leasing information, and being in the outside lane when it comes to lease negotiations. Our strategy is to work with business associations, trade councils, chambers of commerce, franchisors, multi-site tenants, and various other groups to facilitate an informed and cohesive voice that calls out the need for lease norms to be more supportive of tenant enterprise.
The goal is to enhance tenant understanding of the challenge, increase tenant lease negotiation expertise, transform the commercial leasing narrative, and change the perception of what is normative for a commercial lease. As Dianna Hardy's statement points out, this strategy starts with one voice that makes an impact and brings about substantial change to outdated leasing norms.
Final comment
Productivity is a crucial challenge for Australia and New Zealand as we navigate these uncertain times. Whilst labour productivity is a core focus, commercial lease productivity does not receive much attention. Leases that are more supportive of tenant enterprise would facilitate improved productivity whilst containing the level of insolvencies and the related loss of human capital. Increasing the tenants' voice is a prerequisite for more tenant-friendly lease norms.
John Reed
Director - LPC
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Director at Birdsong Legal
5moGreat, concise article, John Reed, which articulates well what I have experienced for many years. A classic example was when a landlord’s solicitor insisted upon certain heavy-handed clauses on the basis they were “industry standard”. How fortuitous for them, given industry standards are created by one side of the “industry”.