Archive for December, 2012

The challenge of Regional Shopping Centre vacancies

Right now, numerous regional shopping centres in Australia are experiencing acute problems with struggling retailers. The problem is not generally under-performing operators but negative consumer sentiment, lack of disposable income due to high home mortgages, small business underfunding and internet retailing – to name the most commonly quoted causes.

One centre recently visited had a retail tenancy vacancy of 10%, with a further 10% occupied by temporary fringe retail operators in such areas as budget fashion, gifts, discount books and DVD’s, and confectionery.  It would be unsurprising to learn that the majority of these temporary operators would be paying anything other than a peppercorn rent. Notwithstanding that fact, they would be unlikely to survive long past the Christmas holiday period and into the bleakest retail month of the year, February.

Very occasionally one of these tenancies is next to a solid operator with a strong history and on a modest but perceptible growth path.  This tenant is likely to have entered into his lease when times were better, and thus agreed at the time to a rent per m2 and annual reviews which would not be achievable in negotiations for a new lease today. The retail tenancy may have several years to run.

This tenant may also see opportunities to grow his turnover by tweaking his business model and the range of merchandise offered. This however would require more space.  At the same time the tenant is very wary of increasing his overheads and exposure given prevailing business confidence and the state of the economy.

For a flexible and opportunistic Shopping Centre Landlord, there may be a potential win/win in this situation.

The Retail Vacancy Solution

If the retailer could be persuaded to expand to take the neighbouring tenancy, the Landlord solves a vacancy problem. At the same time the Landlord consolidates or locks in for a longer term one of his mini-anchor tenants. This would be done by way of a surrender and a new lease.  There would also be an immediate beneficial effect on the shopping centre’s capitalization rate.

Given the prevailing retailing conditions, incentives would be necessary to give the current retail operator, the required level of comfort to take the risk, make the commitment to more stock, staff and system change, and make all of this happen.

The incentives could be:

  • Agreeing on commercial terms which would result in minimal increase in total occupancy costs for the larger area.
  • Changing to a gross lease may be attractive to the tenant and is administratively much simpler for the Landlord.
  • A significant fitout subsidy.

The retailing landscape will improve in time. At lease expiry it is likely there will be the opportunity for the Landlord to negotiate lease renewal from a stronger position.  The retailer will have had the time to consolidate, and build some profitability into the business which will increase the incentive to renew.  In the interim there has been enhanced customer service, and improvement to the tenancy mix by way of the expanded offering.

A brighter future for Regional Retailers

What is needed now is what we call the “mediative mindset”. The ability to see beyond personal goals to embrace the other’s persons opportunity and secure a joint benefit.

For regional shopping centres faced with the decline of traditional retail lease opportunities – this is a way of converting retail tenancy vacancies into long term profits and secure tenants. But it requires a skilful and different approach:

  • The lease can be re-negotiated. It is not carved from stone.
  • Recognition of risk for both sides and a preparedness to understand the other party’s perspective
  • The reality check that to fill space the rental budgets of yesterday will not do the job.
  • Sensitivity to the long-term benefits

If it’s raining, you take an umbrella. You do not waste time complaining about the rain ….  Food for thought?

Article contributed by Australian Retail Lease Disputes the retail lease specialists. See www.retailleasedisputes.com

A solicitor from a leading Sydney law firm has recently published his complaints about the mediator that was engaged to resolve a dispute in which his client was involved (see: article). The solicitor complained that, in the face of: “evidence that there is a very good likelihood that a defendant will win at hearing, it is quite wrong for a mediator to seek to pressure a defendant (or the defendant’s insurer) to make a substantial contribution to a settlement.”

The solicitor states that in his experience, mediators are increasingly ignoring the relative strengths and weaknesses of each party’s case. He says:  “I have noticed an increasing number of circumstances where the mediator displays no interest in any discussion about relative strengths and weaknesses. In such a case, a party’s position paper is soon relegated to the mediation dustbin and all one is left with is ‘how much are you prepared to pay?‘”

The concerns expressed, beg the question: Why has the solicitor hired a mediator with such limited skills?

 The Mediation versus Litigation Process

Mediation is a very powerful process to resolution, with an over 20 year gestation period in New South Wales, that is here to stay. Governments like it (because it saves on judge’s salaries and their increasingly, unfunded superannuation), the courts like it because judges can get rid of “messy cases”, the ones devoid of any nice legal points but with endless conflictual evidence that they have to write up. And parties, who are empowered by the mediation process to make their own decisions and are now able to play a role in their own dispute definitely like it. They finally have an opportunity to have their say, express their view of the “truth” and craft a solution that meets their needs.

The fact that there is evidence available in the litigation process that indicates that a plaintiff could lose, does not mean that they will. The parties are not in control of the litigation process or the decision making, the court is. There are always surprising judgments that emanate (some wrong that need to be overturned) and others where there are surprising turns of events, certain evidence that turns out to be wrong, incomplete or not accepted. It is a brave person who will predict the outcome of a trial.

The Mediator’s Role

Is it the mediator’s role to review the evidence and express their view of it?  The mediator’s role does not entail providing legal advice or reviewing the evidence and advising who will win and recommending the amount of damages that each party should pay. This form of “expert determination” by a former judge is often classed as an “evaluative” mediation. The process is often castigated as not being a “real” mediation – but I see nothing wrong in it. The mediation process provides the cloak of confidentiality and the “expert” mediator assists the parties with information and a recommendation that they are free to accept or reject. The only proviso is that the parties need to know what type of process they are paying (often a very high price) for.

Even if mediator is able to review the weight of the evidence, what should he or she do about it? The mediator is there to allow each party’s case to be fully exposed to the best effect. Mediation is a confidential process (so far as the law allows) and provides the best opportunity for the parties to comprehensively review their stated case, the evidence for and against them and the current state of the law. A good mediator will lead this process through facilitation of the discussion in a joint session. Using their own (hopefully expert) knowledge of the relevant law they will get the party propounding a view to state it and explain the effect of the evidence and the consequences to the other party. Then, in turn, have the other side respond to it. This is not a determination but a discussion that highlights to all present, the strengths and weaknesses of each case, by the people who know it best, the lawyers who are running it.

Mediator Styles

The author of the article concludes that: “In this instance the mediation system failed all the parties. Regrettably, this case is not unique.”

Unfortunately, from my experience he is right. But it is not the “mediation system” that has failed, but the people who were organising the process. I do not wish to imply any criticism of the organisers of this mediation process, but ultimately you get what you pay for, or as one petroleum company famously put it: “oils ain’t oils”. The message is that you need to get a mediator to fit the process you want or one who is able to play different roles, part investigator, part facilitator, part determiner and maybe part counsellor. It comes down to the mediator’s style.

There are far too many “legal mediators” with limited skills of conciliation and an inability to play anything other than a shuttle / settlement role. These mediators put the parties in separate rooms and move back and forth between them (often dubbed ‘the human email’) exchanging offers and hoping they will get to a point where everyone is unhappy enough or tired enough to give up and agree.

Dispute Resolution Protocols

The organising of the mediation deserves one final comment, as this is another area that the legal profession is still coming to terms with. Judges and Registrars in both the NSW Supreme Court and the District Court are referring matters to mediation with increasing alacrity. However, unlike most court related processes, there is no established protocol about who arranges the mediator, the rooms and advises the parties. Often it is done piecemeal, relegated to the “legal clerk” and seems to come together at the last moment.

The solicitors involved are sometimes trying to settle the matter between themselves at the same time they are negotiating with a mediator to be available to conduct the mediation process within the court mandated deadline. When the parties finally accept that they are not going to be able to resolve the matter themselves, the mediator selected is now no longer available and the parties have to find someone else at short notice.

In Summary

Hiring a mediator is no different from hiring an “expert” to provide a report. You need knowledge of their qualifications and training to give you confidence in their technical skills. But you also need to understand the different mediator “styles” available, from evaluative through to transformative, and select the person with the qualifications and skills your case requires.


derek_minus_mediatorDerek Minus is a barrister and mediator of over 20 years experience. An earlier adopter of mediation as a dispute resolution process he is active in resolving disputes in all types of matters through a transformative process. He is a Nationally Accredited mediator, a member of the NSW Bar Association panels for mediators to the Supreme and District Courts and assessed as an advanced mediator by the Victorian Bar.

He is a member of Mediation & Arbitration Chambers, www.medarb.com

 
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