Why it’s time for retail landlords to apply the blowtorch to leases

“Interminable lease negotiation” frustrates deal closing and prevents shopping centres from meeting the demands of a competitive online environment, says retail lease law expert Robert Speirs.

With more than three decades working in property law, Speirs is regarded as one of the nation’s leading authorities on retail lease law.

He says one of the challenges facing shopping centre owners is providing tenants with a lease that conserves their interests without the need for “interminable negotiation”.

“The way in which leases are now drafted and structured spooks the horses, and frustrates deal-closing,” Speirs explains.

“We are operating in an increasingly complex retail environment in which owners are stretched between risk management and deal closing.

“While we have come a long way in the last 20 years, many shopping centre leases are still too long, too complicated and too difficult to close. The longer it takes to negotiate a lease, the longer it takes to lock the tenant down and secure the income stream.”

Speirs points to Lendlease’s introduction of the “revolutionary” column-format, plain-English lease in the 1990s. “This was back in the day when leases still said ‘hereunder’, and one sentence could run to over a page.”

Speirs thinks the introduction of this lease gave the Lendlease business a “shot in the arm” and enabled it to “steal a march” on the other major centre managers.

“But the real beauty of the document was its disciplined approach to the transaction. Every lease covenant was examined by the business for relevance and utility, and only those that passed muster were retained.

“Lendlease worked out that an infectious illness had never broken out in one of its centres, and that therefore a clause dealing with infectious illness was a waste of time.”

Speirs says it is time for owners to apply this sort of discipline to their current leases.

“Sure, there is a risk that an infectious illness might break out, but someone needs to make a judgement call.”

He says it is too tempting, and too easy, for risk-averse institutions to accrete clauses to standard leases in response to perceived problems, and to end up with a document that loses its way.

“They are not snappy enough. A lot of leases now comprise standard terms, and annexures containing standard and non-standard amendments, which cross-reference to each other and to the original lease. You have to be a contortionist to navigate them.

“National tenants wield an increasingly big stick and are prepared to stand their ground. Lease negotiations can stall over provisions that do not matter.”

Speirs thinks it is time for landlords to apply the blowtorch to their standard leases, so that they provide adequate protection, but are not an impediment to closing a deal.

Speirs Ryan was established by Robert Speirs and James Ryan in 2014 and advises both national landlords and tenants. Find out how Speirs Ryan can support your business.