22 June 2004
Sydney, 22 June 2004: The growing trend for large industrial and manufacturing companies to sell off their property and real estate holdings has created a more favourable climate for tenants negotiating lease arrangements. Banks, government organisations, major retailers, as well as manufacturing and industrial companies are creating a new breed of blue-chip tenants that are changing the way lease agreements are being negotiated.
Commercial tenancy and lease agreements are now favouring tenants with large floor space, storage, factory or other commercial requirements in a market that is becoming increasingly competitive due largely to the move away from ownership towards aggregation of property interests.
Property lawyer, Peter Crowley, a partner in law firm Clayton Utz, says leasing agreements that traditionally and overwhelmingly favoured landlords' business interests are becoming more balanced with much greater consideration for the tenants' needs and rights.
"In the past, lease agreements were structured to suit the landlord and they tended to dictate the terms of a lease. Indeed, it was often the case that the landlords' undertaking or obligations were the shortest part of the lease agreement.
"Now there are many large companies seeking substantial floor space and they are negotiating much more favourable lease agreements simply because of their buying power. This is restoring a proper balance between the needs and requirements of both parties," he said.
Some of Australia's biggest companies and government organisations have in recent years sold off their properties and are now leasing large areas or entire buildings allowing them to focus on their core business. Banks and supermarket chains are changing the way commercial leasing agreements are being negotiated and creating greater expectations in terms of service delivery from landlords.
Peter Crowley has managed lease agreements for clients with large office space needs, including the Defence Department in Canberra, Sydney and Melbourne that have very specific requirements and conditions.
"The provision of building services and security are two areas where, in the past, tenants' rights were badly neglected or even ignored.
"Where building services failed or were simply inadequate, there was often no obligation for the landlord to have them restored or rectified within a reasonable time. And, there was certainly no legal recourse for a tenant to be recompensed for any loss of business, a rent rebate or reduction, or to terminate the lease agreement.
"Landlord attitudes are changing now, especially as a good tenant, apart from providing large revenues, can attract other tenants to a building or complex. Landlords are beginning to realise the importance of being competitive and the need to provide a high level of service and security for tenants.
"Even in a more competitive market place, it is absolutely vital for tenants to seek expert advice when negotiating complex tenancy agreements to ensure that it is structured in a fair and balanced way and so that they receive reasonable concessions," he said.
In Victoria, corporations are selling off large property holdings in prime locations often with the objective of leasing back from institutional property trusts and property investors.
According to Clayton Utz property partner, John McGuire, large property trusts and syndicates are eager to negotiate lease agreements with blue-chip tenants with large area or space requirements.
Blue-chip tenants, particularly in the manufacturing and industrial sectors are negotiating very favourable lease-back deals where they have decided to sell off a property asset and reinvest lazy capital back into their core business activity.
"One of our listed manufacturing clients recently negotiated an outstanding lease-back deal where a listed property trust purchased one of its warehouses. The trust has undertaken to upgrade and extend the building as a purpose built facility for our client to lease back.
"The agreement effectively means that our client frees up some capital and the future landlord-buyer will finance the facility upgrade to the client's requirements in return for a long term lease arrangement that guarantees the trust an agreed yield or return on its investment.
"This arrangement is an example of how lease deals are favouring tenants, or at the very least assisting companies to focus on core business issues. It also illustrates the move away from a landlord-master relationship of the past to one where the tenant gets what they want, using someone else's capital," he said.
