The South African retail industry has seen significant growth with an increase in the number of shopping centres spreading rapidly countrywide. However, with careful consideration of the risks and economic pressures, it is an opportune time for potential business owners, entrepreneurs and real estate investors to enter the retail market.
When looking for rent space, it is important for tenants to ensure they fully understand their business and their rights. This is equally important for the landlord and property management company in order to determine whether or not the tenant’s business will be prosperous in the centre. Understanding the needs of the business and knowing the target market is the key to strategically positioning the business in the right location within the centre. Once this has been established, the tenant will be able to ascertain if the rental is achievable.
The most important objective for the landlord id to ensure a strong tenant mix. Whether you are renting a single space or tenanting an entire centre, it is imperative to screen tenants and ensure they are able to meet the obligations of the agreement. This is achieved by doing credit checks on the signatories and sureties.
The minimum essential clauses of the agreement are another important aspect to bear in mind when signing a lease agreement. This includes the parties to the agreement, premises description, lease term, rental, escalation rate, usage clause and the residence of the parties. The micro and macro-economic climate plays a critical role as economic downturn or economic growth brings different benefits and risks for both parties.
The Financial Intelligence Centre Act (FICA) has been a considerable advancement in property management as it establishes control in terms of the chosen tenant, which did not exist prior to the Act being promulgated. The purpose of FICA is to verify the identity of any natural-juristic person or trust which is supported by recorded details of client’s profile. FICA implicates both the landlord and tenant as the landlord is now obligated to curb money laundering, requires them to maintain records of each entity they receive money from and positions them to report transgression of the Act. The tenant is not able to conclude an enforceable agreement with the counterpart should they fail to supply their FICA documents.
Tenants need to ensure the landlord they are renting space from maintains the property in such a way that they can trade under acceptable standards of business; thereby taking into account that the centre adheres to the Occupational Health and Safety Act by providing a sale, secure, and clean environment.
It is valuable to note the rights and obligations of tenants and landlords exist through mutual agreement, application of specific acts and the common law in order to conduct business that is beneficial to all parties, the consumers and the economy. Wholesale, retail, motor trade, catering and accommodation make up 12.5% of the South African Gross Domestic Product (GDP), with finance, real estate and business services thereby contributing 21.5% of the South African GDP. This thereby makes this relationship between landlords and tenants one of the pillars of the economy.