Any serious conflict between a management company and tenants might paralyze the work of a shopping center and seriously undermine its reputation. Both sides have an interest in civilized relations, naturally, but in practice there still might be plenty of cause for disagreement. How can a situation be created where all parties involved can address their grievances?

Regular Communication

“As a rule, the representatives of the managing company should try to create an advantageous climate in their relations with tenants by clarifying their requirements ahead of time. The management company must never spoil its relations with tenants, since the tenants provide the property with its revenues. On the contrary, the management company and the tenants try to create mutually beneficial understanding, which as a result helps them to sort out any problems,” explains Roman Sokov, the director of consulting for Becar Commercial Property Moscow. Managing partner of LCMC, Dmitri Zolin, observes that, “Usually the bond with tenants is the responsibility of the head of the management company himself or one of his aides and deputies. From the commercial property’s tenant side, similar functions might be taken care of by the director of this or that commercial organization (if it is not particularly large) or by the network’s coordinator in a specific district (if we are speaking about a very large operator.)”

How is this link supervised from the technological point of view? Usually a company uses an automated system. There are specified complaint and request forms, on which all problems and worries can be designated and explained to the management company responsible for addressing them. The management company’s answer may take any form necessary that is mutually satisfactory for both parties in the process. Often the management company may call for a communication session with the tenants of the shopping center. There may even be sessions wherein representatives from all of the tenant organizations meet to discuss common grievances and questions which may affect the future of the shopping center.

 Tenant Services
According to many specialists, for a shopping center to be successful it is necessary for managers to maintain a closer connection with tenants than the contract may appear to suggest. For example, if the management company has special information about the market and its basic trends, it may provide substantial help to its retailers in their daily operations. A management company may regularly provide tenants with information about the work of the shopping center, the number of customers and visitors, the volume of goods being moved by volume, and the presence of competition. Additionally, tenants must receive information about current and potential customers. This close cooperation helps to settle many problems. Suppose that one tenant operating at the ‘June’ shopping center begins to complain about low sales volume. The managing company may know that there is a similar shop located not far from this tenant, which also offers the same products or services. The managing company has also set up metrics to assess the number of visitors in the shopping center. The company may establish as fact that the problem is in fact the personnel of the first shop, and may recommend that it be replaced. The result is that the shop is able to make the necessary increase in sales volume.
“The management company might provide services for the advancement of the shopping and entertainment center, and the success of the tenants will naturally depend on how properly advertised the center can be. An advertising campaign will come off more effectively if both sides work together. The management company can develop a general conception for the advancement of the center itself and conclude contracts with the operators about daily advertising fees. The consolidated advertising budget helps the alliance to achieve greater effectiveness, though not all tenants are prepared to pay for general advertising out of their own pockets,” explains Dmitri Zolin.
Certain management companies carry out training for tenants designed to improve the service culture. As a rule, the management company does not involve itself in repair work within the tenants’ properties, but may recommend the creation of an appropriate organization for this purpose. But the management company of any shopping center may choose to widen or narrow its packet of services depending on the circumstances and the requirements of its tenants and customers. Of course, the anchor tenants require special attention from the managing organization. There may even be supplemental services for these companies, such as so-called rent holidays or even reduced rents in order to maintain good relations with a strategically important tenant. Lowering rates for one tenant, however, might lead to discontent and unwelcome demands from its neighbors, and experts recommend that this measure be preserved for particularly exceptional situations. “Actually there is no real diverse range of services hired or created by the developers. Private development companies try to be as competitive as they can be and to raise the level and range of their professional management services,” says Roman Sokov.

Conflicts
“Often arguments arise when there is a lack of clarity regarding a certain aspect of a contract or when the conditions of rental agreements in a shopping center under construction remain unclear,” says the director of commercial real estate for Cushman & Wakefield Stiles & Riabokobylko, Konstantin Sakharov. “When a property is being let out, lots of problems come up when the space doesn’t match what was described in the contract and so on.” One more widespread reason for conflict may be when the landlord tries to bring in a new tenant at the end of a previous tenant’s lease, ignoring the preemptive right of the first tenant to renew his lease. It may happen that the owner of the shopping center even tries to evict his smaller tenants ahead of schedule in connection with economic expediency. The conflict between retail network, Paterson, and the managing company of Megakomplex on Moskovsoe, the largest shopping center in Samara, gained a great deal of notoriety in 2004.
Paterson opened on Megakomplex on Moskovsoe in the summer of 2003. In June of 2004, the leadership of the management company broke off relations with Paterson. The landlord claimed that Paterson had not fulfilled its contractual obligations. According to Paterson, however, the Megakompleks wanted to raise its rental rates significantly. At the beginning of August, despite the protests of the retailer, the property was stripped and dismantled. Paterson won its law suit against the landlord, however, as arbitration upheld the old contract between the two parties and required the management to pay the retailer $100 thousand in penalties. Paterson emphasizes the significance of that judicial decision for the retail market. The arbiter acknowledged the legality of the contract, which was concluded between the anchor tenants and the owner of the new shopping center until the acquisition of all the necessary permits. Many specialists doubt that this incident can be counted as a precedent. In ever situation the judiciary’s ruling will depend on a number of factors.

Conflict Causation
One of the most serious problems which parties in a rental agreement could come up against might be a clash between a given tenant and the total conception of the shopping center, leading to a reduction in attendance. In that event, the management company and the landlord might need to think about replacing the operator. In order to avoid such a situation, the rental agreement must be made up to distinctly accommodate for the tenant’s position within the center. The management company must also quite clearly keep track of its general conception design.
The improper distribution of tenants throughout the property’s space might also lead to conflicts. In that event, the tenant himself might have an objection to the management company’s actions and threaten to abandon the property. A drop in the operator’s yields sometimes may be the result of the poor placement of shops in, for example, a dead zone. Then the management company might establish additional advertising methods to direct customers toward the necessary locations. If these means do not solve the dead zone problems, then more radical decisions such as architectural reconstruction must be considered.
As a rule, when a solution cannot be found, it is the tenant and not the management company that leaves – but there are exceptions in those cases when the landlord himself has not created the management company. An acceptable turnover for tenants during a given year may be 5% in any shopping center, but if that figure breaks above 10%, it may be time to reconsider certain management policies. On of the brightest examples is the striking of tenants at Atrium during the first year of the shopping center’s operation. Retailers demanded a decrease in rental rates, explaining that the management company was not spending enough on promotion. Later, as the retailers threatened to leave the center, the management company was required to begin negotiations to lower rental rates.
Analyzing these situations of conflict, all market players may come together for one goal – to avoid conflicts and to foresee as many of their differences in the lease planning phases. Beside the contractual base, ever professional shopping center uses a document such as the ‘Unified Rules of the Shopping Center.’ This establishes the procedures for work and for securing the property, as well as identifies the areas for smoking and for eating, schedules the blotting system, the periods of product loading, the maintenance of the center, the taking out of trash, and the times for opening and closing shops, as well as a mass of other issues. Often unscheduled increases in rental rates or the failure to pay rents might lead to conflicts. Practically every shopping center has seen incidents when tenants failed to pay what they were required to pay on time. Sometimes a management company may meet personally with a tenant after evaluating his financial potential and coming to the understanding that he may escape crisis if he settles his debts. If a successful agreement cannot be reached, the parties will part ways.
“If a tenant violates the conditions of his contract and fails to pay or systematically withholds his rental, communal, or service payments, or regularly violates the established rules of the shopping center, the shopping center might turn off his utilities and technical equipment or even confiscate the property. In this event, the arbitration court will settle the issue,” says Konstantin Sakharov.

Whose Side is the Management on?
It’s no secret that the management company is ultimately on the side of the landlord and will ultimately represent his or her interests. However, the management company might forget about the needs of the tenant. If tenants leave and take with them the landlord’s profits, this will not reflect well on the management company. This ‘swan, crab, and pike’ situation could lead to a crash, as it does in Krylov’s fable. A proper management company sincerely takes an interest in observing a balance between the landlord and the tenant.