By Kyle Swain, Retail Director - Australia and New Zealand, Lpc Cresa
Despite some challenging conditions for the retail industry, there are still plenty of new and existing retailers entering into new leases and in most cases, landlords are offering very good fitout incentives - especially in new and re-developed centres where these payments are budgeted into the project.
With specialist tenant representation, it is possible to negotiate the terms of payment of these incentives upfront along with the commercial and operational terms of your lease. This may include receiving progress payments during the fitout, or a significant portion of the payment on opening day.
Typically, incentive payments are covered by a 'deed' which sets out the terms and conditions around the payment of the incentive. Certain conditions will need to be met before full or final payment of an incentive will be made. The processing time can also be significant. It can be weeks or even months before a retailer sees the cash in the bank.
For many retailers, particularly smaller ones like family businesses, owner operators and start-ups who don't generally have a lot of capital for upfront costs, the incentive payments are critical to covering capital costs associated with fitting out their store.
From a cash flow perspective, it is absolutely critical that the retailer meets the criteria for payment of the incentive as soon as possible and receives the money in their account in the shortest possible time.
Below is a list of the five key actions we recommend you include in your fitout program to ensure you receive the cash from the landlord incentive quickly to restore cashflow and get your new retail business off to the best start possible.
Ensure the plans approved by your landlord are the same ones used 'for construction' by your shopfitter and any supporting trades. These plans should be clear technical drawings, not conceptual drawings open for interpretation by the landlord, shopfitter and you the business owner.
Things like methods of fixing, finishes and exact fittings selected can cause delays in releasing the incentive at the end of the fitout if the landlord feels it doesn’t match their expectations based on the signed-off design. This may result in a dispute over perceived ‘defects’ and the incentive being withheld until the matter is resolved.
Arrange a pre-handover meeting for the site with your shopfitter and the landlord’s representative such as the Retail Design Manager or Tenancy Coordinator. This is a good opportunity to build rapport and go over every detail in the approved plans to ensure both sides are absolutely clear on the expected works and therefore there is less likelihood of any works being ‘defected’ upon completion.
This initial meeting will also be helpful when it comes time for signing off the fitout as completed and lodging the paperwork to release the incentive payment.
A weekly inspection of works completed with whomever is responsible for the final defects inspection on behalf of the landlord can raise any issues early enough to be corrected before practical completion. This can save a lot of time (and money) as the issues raised never become an actual ‘defect’ needing to be rectified after works are completed.
These progress inspections are also a good chance to make sure the program is on track and expected standards of work are being met, as you are likely to be invoiced for 'progress payments' which contractors are entitled to under construction industry legislation.
Book the final inspection with your shopfitter and the landlord’s representative responsible for signing off the ‘Statement of Completion’ as soon as you know the last day of fitout works. This will trigger the start of the process to pay the incentive. Ideally, this inspection should be completed the same day the certification is completed and the store is deemed ready to trade. It should also act as the official ‘defect inspection’ as any items picked up during this inspection may be rectified on the spot.
Often this inspection is only done after the store has been trading for a number of days (or even weeks!), and any ‘defects’ tabled require the shopfitter to schedule trades to return to the store to rectify the list of items before another inspection is done by the landlord to sign-off the make-good defects. Often, this process can drag on for several months, delaying the release of the incentive funds.
In most cases, once shopfitters leave a site, they are busy working on a new site and it can be weeks before they return to do any rectification work - ultimately adding further delay to receipt of the final payment.
If you do need your shopfitter to return to address defects, we recommend scheduling the follow-up inspection for late on the same day as they are booked to return, placing some urgency around having all items completed on that day. It also ensures you can have the trades onsite during the inspection to ensure the work has been done completely and in accordance with the landlord’s expectations. This should eliminate the possibility of any further delay in the ‘Statement of Completion’ being signed.
Lpc Cresa provides specialist leasing and property services to independent, multi-site and franchise retail tenants across Australia and New Zealand and is the tenancy and leasing advisor to the National Retail Association.