Costs put bite on retailers

SMALL retailers in shopping centres signed up on net leases – where they have to pay rent plus outgoings – usually face a nasty letter from their landlord around September.

That letter includes a bill for extra expenses caused by overruns based on the centre’s estimates for expenditures through the year.

For many small businesses that bill can create a huge strain on cashflow and there is little they can do to budget for it.

One of the main gripes retailers have with this system is that they have no control over how centre managers control their budgets.

At the end of the financial year, shopping centres have to undergo an audit of their outgoings.

Their estimated expenses are apportioned to the tenants throughout the year as per their lease. Any cost overruns found in the audit can get passed on to the tenants.

One audit given to WA Business News shows the costs tenants face include things such as air-conditioning running costs, management fees, management office expenses, gardening, light and power, background music, water rates and public liability insurance.

Ironically, in this case the estimated expenses exceeded the actual expenses and tenants received a refund.

However, a retail industry source said the refund was a very rare occurrence.

The Commercial Tenancy Act, which came into effect in July 1999, made it illegal for landlords to pass on things such as management fees to their tenants.

However, there are still many retailers operating on net leases that were signed before July 1999.

Small Business Development Corporation managing director George Etrelezis said there were still things people on net leases should do to ensure they were not paying more than they should be.

They need to check the split between tenancies to make sure they are not being apportioned more costs than they should be and ensure that allowances are made for any vacant premises in the centre.

They could even ask to see rates notices for things such as water rates.

Mr Etrelezis said it was not “unheard of for landlords to make mistakes”.

Legal experts believe tenants have the right of voting with their feet if they believe the landlord or management agent is not doing the right thing by them.

However, a business location is often crucial to customer goodwill and few small retailers are prepared to give that up lightly.

Mr Etrelezis said those going onto new leases should check the disclosure statement that comes with it to find out how outgoings are apportioned and which ones could be raised by the landlord at his or her discretion.

“They also need to check things such as rent review and renewal notice periods,” he said.

The SBDC has two leasing guides available – Leasing Business Premises – A Commercial & Practical Guide and Commercial Tenancy Retail Shops Act – Some Questions and Answers.