Tenant leasing: Your landlord can always change … Coles blind sides Woolworths

Often when I am advising commercial and retail tenants on their leases when we are discussing negotiating the lease terms with the landlord and there is a particular issue which needs negotiating or amending in the lease, the tenant will instruct me not to push the issue saying ‘don’t worry about that one, the landlords a good guy we don’t need to worry about that’. At that point I remind the tenant that their landlord can always change…. At anytime…. and generally, without any notice until the new landlord has purchased the property.

The next instalment in the ongoing saga between Coles and Woolworths is an interesting example of how this can happen…even to Woolworths and was reported in the SMH on March 23 by Adele Ferguson and Chris Vedelago.

In short, Coles bought the real estate at Grosvenor Street Neutral Bay where one of Woolworths high volume high sales store is located. The lease to Woolworths expires in 2014 with a 10 year option to renew. Woolworths were not aware of the sale until it had occurred. In Woolworth’s defence, Coles set up an elaborate purchasing structure which means that it would not have been immediately apparent that Coles was behind the structure of the new landlord. What this now means for both of the Supermarket giants is yet to be reported. However, at the very least Coles as landlord will have the right to inspect Woolworths sales data as part of the normal rent review processes in a retail lease like this.

An extreme case perhaps. But is it is a timely reminder to all tenants that your landlord can change at any time. The important thing is to make sure your lease reflects your commercial agreement and you understand and are comfortable with the terms…whoever your landlord is. That nice guy that you have a good relationship may not be your landlord when the lease expires and the issue of make good has to be finalised.