EAST LONGMEADOW, Mass., Aug. 5, 2015 /PRNewswire/ -- 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 that come with hefty price tags. The cost of poorly executed leases can be so damaging to bottom line performance, that one prominent lease administration executive is advocating a new, proactive lease process to help retailers avoid unfavorable lease clauses and eliminate negative budget surprises for tenants.
How does this new process work?
Co-founder of the National Retail Tenants Association (NRTA), Moe 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; the first step in this process is to review the letter of intent to insure all points are correctly spelled out in the lease document.
Moe Laliberte, former vice president of Lease Administration 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 practice 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 lease language resulting in disputes with the landlord and costly legal action–more money siphoned from the bottom line."
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 concerned CFO must educate the real estate staff on how much lease language directly affects costs over the lease term.
SOURCE National Retail Tenants Association