Seeing red over rent

by Lorna Tan
 
More mall tenants must cut landlord in on their till, pay higher base rent

MORE than 100 retail tenants at the IMM Building in Jurong who renewed their tenancy leases in recent months got a rude shock when they were hit by a rental double whammy.

In addition to a fixed monthly rent, they now have to pay a percentage of their gross monthly takings.

This practice is becoming more common at several shopping malls, leaving many retailers unhappy.

First, it means the overall rent goes up. Second, when business improves, the landlord gets more.

However, if business is bad, they fear the landlord will know it, and may evict the tenant and bring in another who can draw customers.

One retailer at IMM complained that his fixed rent went up by more than 7 per cent when CapitaLand's CapitaMall Trust (CMT) renewed his two-year lease.

With the revised base rent and an additional cut of his takings, he said, he will end up paying about 25 per cent more than he did before.

He declined to be identified or to provide more details, citing a confidentiality clause in the tenancy agreement, but he added: 'We feel that the rate of increase is on the high side.

'With every incremental dollar sales achieved, we will end up paying more.'

The Straits Times learnt that the revised monthly fixed rent for similar retailers at IMM is between $35 and $38 per square foot (psf). At nearby Jurong Point Shopping Centre and West Mall, the revisions range between $30 and $38 psf.

The new policy at IMM affects about half of the more than 300 retail tenants that have leases due for renewal this year. Most have already renewed.

Singapore Retailers Association executive director Lau Chuen Wei said some members had complained, saying they would not have minded paying a cut of their takings if the fixed rent had gone down - but it went up instead.

Retail rents are expected to continue to rise, by about 5 per cent by year-end, due to positive consumer sentiment.

IMM was purchased by CMT last year, joining its stable comprising Tampines Mall, Junction 8, Funan The IT Mall and Plaza Singapura.

A spokesman for CapitaMall Trust Management said it is now a 'common practice' to include not more than 1 per cent of a tenant's gross turnover in new leases.

This keeps the landlord and tenant's interests aligned, he said, and allows the landlord to fine-tune a mall's tenant mix by adding tenants able to attract more shoppers.

The IMM-type formula is used at Changi Airport, and will apply to most tenants at VivoCity, the mall coming up at the former site of the World Trade Centre.

However, VivoCity's developer, Mapletree Investments, intends to keep the fixed rent about 20 per cent lower than rents elsewhere, while taking a cut of 3 to 8 per cent of tenants' sales, higher than the industry norm of 0.5 to 1 per cent.

Bucking this emerging trend where landlords get a cut of tenants' sales, Fraser & Neave (F&N) charges a flat rent at the seven malls owned through its property unit, Centrepoint Properties - as does City Developments at its malls, Central Mall, Chinatown Point and Palais Renaissance.

Both had a few tenants who asked to pay a percentage of their takings. Where this was allowed, the tenants were charged a lower fixed rent.


Ranting and raving over rent......   


WHAT LANDLORDS SAY  

Requiring a tenant to pay the landlord a percentage of the takings aligns the tenant's interests with the landlord's.

It also helps the landlord to fine-tune the tenant mix by adding tenants able to attract more shoppers.

Landlords at IMM and Changi Airport are now applying this formula - as will VivoCity when it opens for business. C

WHAT TENANTS SAY

Giving up part of the takings raises the tenant's overall rent, increasing his overheads at a time when the economy is still struggling to recover.

Also, the landlord will find it easier to evict the tenant whenever a more attractive tenant comes along.

If the landlord wants part of the takings, he should at least keep the base rent down.

The saga continues...