An Overlooked Source for Cost Savings: Check Your Lease

The highest cost of doing business for any retail operator is typically the fixed occupancy costs related to their leased locations. Retailers negotiate these costs with a particular business model, including competitive environment and location characteristics, in mind. Clauses that are key to provide these protections may include, but are not limited to, tenant exclusives, access and parking configurations, and key tenant operations. If the clauses are violated and not remediated within a specific timeframe, a tenant can collect on penalties that can range from reduced rent to termination rights. While the occurrence may be rare, savings can be quite substantial.

As an example, a Lease Administrator for a large retail organization (and TAS client) received a consent request from a landlord to lease an empty grocery space to a new operator. Upon reviewing the lease, she noticed that there was a Key Tenant clause that provided the remedy of reducing their rent by 50% if the grocery tenant space was vacated. In researching further, she found that the existing grocer had been closed for 2 years resulting in a finding of approximately $350K in overpayments of rent from the time the grocer vacated until the consent was received.

The biggest challenges precluding retailers from taking advantage of these protections can be categorized as follows:

  1. Resources needed to track these potential violations
  2. Lack of field-level intelligence or a method to ensure timely, actionable tracking of this information for a location
  3. Field Leadership does not have visibility to specific lease language for each location
  4. Timeliness of the action taken to notify and pursue the penalties

With the following capabilities, TAS offers the best solution to manage these one-off events:

  • A secure database that can integrate your location-specific lease information and provide access to authorized users
  • The ability to visualize the opportunity by highlighting those locations with potential penalties
  • Allows commenting by “boots on the ground” intelligence to be added to a location record
  • Provides a workflow to escalate situations that may lead to cost savings
  • Reporting to provide a holistic view of the potential savings for the portfolio

Another client implemented TAS technology to address this opportunity and saved over $20 million dollars in rent in one year! If you’d like to learn more, let us know

Author
Sue Lanois