The Franchising Council of Australia is looking for franchisees, franchisors and leading retailers to lend their support to a voluntary Retail Tenancy Code of Conduct, which it argues will level the playing field between tenants and landlords and help prevent excessive rental increases in the major shopping centres.
The code follows complaints from retailers about Australia’s high rents and recommendations by the Productivity Commission in 2008 for a voluntary national code of conduct for shopping centre leases.
FCA executive director Steve Wright says a voluntary code for landlords, tenants or representative organisations has been drafted to address member concerns over the “extreme behaviour that occurs far too frequently”.
- Excessive rental increases in major shopping centres.
- Unreasonable behaviour in relation to end of term arrangements for sitting tenants.
- Unreasonable and costly requirements in relation to shop fit-out and signage.
- The substantial information imbalance between landlords and tenants.
- Abuse of market power where landlords offer contracts on a “take it or leave it” basis.
“The market mostly operates fairly, but there are enough instances of inappropriate circumstances that something needs to be done,” Wright says, pointing to anecdotal evidence of a demand for a 70% rent increase at the end of term.
“That sort of behaviour, even as a starting point, is inappropriate,” he says.
Another example raised by Wright is landlords saying they will not renew a lease who are later revealed to be in negotiations with a competitor willing to pay a higher price for use of the property.
According to Wright, the problems often stem from the information imbalance between landlords and tenants. Allowing tenants to see how much their neighbours are paying will put the two on a level playing field, he says.
Wright also says while the franchisee/franchisor relationship has attracted plenty of media attention recently, it’s often third-party issues such as unfair rent increases or unfair competition at the heart of disputes.
The FCA, which represents both franchisees and franchisors, says it will need to get support from franchisors, franchisees and leading retailers before taking the code to the shopping centres, such as Westfield and Centro.
Wright expressed confidence the Shopping Centre Council would support the measure.
“The Shopping Centre Council said a few years ago they would be interested in signing up to a code of conduct,” Wright says.
Wright also expects the Australian Competition and Consumer Commission and the Government to keep a close eye on developments.
Under the plans, a code administrative committee would be established to monitor the code. The committee would consist of one appointee from the FCA, one appointee from the Shopping Centre Council and two elected representatives of the signatories.
Competition expert Frank Zumbo says retail leasing does need to come under the microscope, but he’s disappointed it will not be mandatory.
“The danger with a voluntary code is you will have a degree of non-compliance,” Zumbo, Associate Professor at the University of New South Wales, says.
“The more reputable landlords will comply, but the rogue ones are less likely to comply.”
“Experience with the voluntary Franchising Code showed we only got compliance of 60%,” he claims.
“While a code of conduct is a way forward, it needs to be mandatory, targeting shopping centre landlords’ dominance of the sector, which then allows them to increase rents and behave in unethical ways.”
“If you are serious about dealing with the problem areas in the retail leasing sector, then you need to have a code with teeth and everyone complies with and is therefore a level playing field.”
This article first appeared on SmartCompany.