When Landlords or Managing Agents Change - a Checklist for Retail Tenants

Managing Landlord Changes in Retail Property Leases

In this episode of 'That Retail Property Guy', host Gary Marshall discusses the complexities involved when a landlord changes or assigns a new managing agent, focusing on the impact on retail tenants. Gary explains the roles of landlords, managing agents and tenants in managing lease-based costs such as rent and service charges. He stresses the importance of diligence in verifying and reconciling billing details, especially during transitions. The episode covers the steps and checks necessary to ensure that payments are accurately directed, spotlighting the collaboration needed between estates and accounts teams to prevent errors and fraud. It underscores the necessity for tenants to stay vigilant to safeguard their financial interests in such transitions.

00:00 Introduction to the Venn Overlap of Retail Property Management 

00:20 Understanding Landlord and Tenant Relationships

00:34 Common Billing and Payment Issues

02:16 Handling Changes in Landlord or Managing Agent

04:42 Ensuring Accurate and Secure Payments

05:46 Effective Communication and Due Diligence

07:33 Collaborative Efforts Between Estates and Accounts

08:48 Final Checks, Thoughts and Recommendations

20:25 Conclusion and Next Steps

Further listening:

Retail Landlords - Villains or Visionaries?

Landlord & Tenant Act 1954 - Superhero in Security of Tenure

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Transcript

0:00

Welcome to that Retail Property guy with your host, Gary Marshall. In each episode, we delve into topics relating to the particular overlap between estate management and accounts payable from the perspective of a retailer as tenant We hope you'll be entertained, enlightened, and may be a little inspired. Landlords and their managing agents. Let's discuss who collects which charges that arise under the lease. And what happens when they change business. Relationships like this don't always last forever. I'm often amused in discussions with clients and contacts who aren't at the pointy end of making payments for lease based costs, such as rent and service charge by their assumption that tenants pay landlords. In this thought, of course, they mean that the landlord handles all the billing and receipting and so on. In some cases, many cases, yes they do, but it's not a fixed scenario, and in my experience, it's not the most common. Many landlords, particularly if they are huge pension funds or foreign based or just too darn busy, will appoint a managing agent or a collection agent. To handle the invoicing and the collection and the preparation of the property ledger and the issuing of VAT receipts and the chasing of arrears and the procurement of insurance, and, whew, it's a lot of work. You can understand why some landlords farm it out and just as often I'm amused by an assumption that a tenant pays whatever invoices the landlord or their agent provides, because of course they're always right, aren't they? Well, of course the answer is no. There are often errors, emissions, incorrect assumptions, and computer says No moments. And this risk of confusion and error, mismatch of data and so on becomes the basis of a lot of work afterwards, monitoring those build items from the landlord or their agent and obliging them to make corrections or refund the overcharge. My business services team, smarter Estates specializes in this activity. It's a multimillion pound task. We often refer to it as accounts recoverable. I haven't yet met a tenant whose immune to this inaccuracy of billing and payment and year end reconciliations. One common area where these variables arise is when a landlord changes or at least has a beauty parade and appoints a new managing agent. In this change of controlling interest and management function, the old landlord and agent will have to reconcile their ledger and hand over a balanced book to the new landlord and agent. Generally, this happens directly between the two landlord parties. It almost doesn't concern the tenant. They're not hands-on involved in the transaction. But they are on the receiving end of any mix ups, mishaps, misunderstandings, inaccuracies, delays, and downright fudging of the numbers on behalf of our tenant clients. We've seen no end of situations where the exiting landlord or agent retained an unexplained balance on their accounts, not passed over to the new guy and not refunded to the tenant. These invisible balances can sit on a landlord's ledger for years. I often wonder what happens to them after a decade or so has passed with nobody chasing, Well, let's not speculate, but with some judicious forensic research and a tenacious pursuit of the right answer, we've recovered millions of pounds like this just sitting there. It should be in the retailer's pocket, not the landlord's, or worse their agents. It's pure profit to the bottom line. So chase it. But I digress. The point of our discussion in this episode is handling or managing those changes when a landlord sells their interest or appoints a new agent. It's not unusual for a landlord's interest in a shop or retail park to change hands midway through the term of a tenant's lease. It's just the usual churn of business investment funds come and go. Objectives change. So old landlord sells to new landlord. Who then issues new instructions to the tenant about who to pay, how to pay, possibly even when to pay, often accompanied by a bunch of other expectations that may or may not be included in the tenant's lease based obligations. Time to read that lease again, RTFL, or sometimes it's just the periodic renewal of a management contract. Again, this will trigger new instructions about who to pay, how to pay, and when to pay. Previously agreed concessions or side letters and customary arrangements can be overlooked or thrown out to the window, so the tenant needs to be on the front foot to enforce these. In my experience, the who to pay bit is often a challenge. A landlord or their agent might think it's okay to share their new bank details on the afternoon before rent day and still expect prompts payment. If they might think their invoice is the only invoice to be processed that day and believe that the compliance tenant will prioritize it with a quick bank transfer. No questions asked. There are numerous questions to be asked, and often there's a separation of duties. That means an accounts colleague can't make a payment of large amounts to a previously unknown payee without other colleagues first vetting that payee against fraud, money laundering, modern slavery. We probably all know at least one urban myth about someone Photoshopping a genuine agent's invoice and trying to pass it through for payments. So let's consider who in your team handles which part of a change, what tests are applied? Who signs off? What's your due diligence against fraud scam? Incorrect data leading to a missed payment, possibly money gone forever. For example, if you are recognized and longstanding landlord or their lawyer advises you a sale of their interest. Where does that communication go? I've seen examples of landlords or their representatives sending formal notifications to the subject's premises that are demised in the lease, so to a trading branch rather than to the registered office that it's also mentioned in the lease and checkable company's house. Why would they do that? Is it poor research, lack of training, or maybe even intentionally sneaky, and if so, what are they trying to conceal? Are they not aware of the many reasons that that notification might be deemed undelivered, not the least of which is the poor store manager who generally has no authority or obligation to check and understand correspondence like this and might just take an obvious decision to treat it as junk filed under B for bin. But let's assume that the notification does reach the right building. Which desk does it land on, or which mailbox does it land in? Estates accounts, even if it lands first with legal or admin or the company secretary, which admittedly could all be the same person, who would they pass it on to? Estates or accounts. So who carries out which next step for you? Who checks that incoming paperwork? Who connects the dots? Looks for fraud, validates the authenticity and applies the test of trust. Back to that old Venn diagram Overlap. This is part of states and part accounts payable. In my experience, estates teams might shy away from this by seeing it as an admin function, not a deal, not a lease negotiation, but holding a mirror to that accounts. Teams might not have the market knowledge or experience to apply the basic tests. In an ideal situation, accounts and estates work hand in hand. The team on the left at the top of the stairs reaches across that great divide and liaises with the team on the right at the top of the stairs. Shared knowledge, shared expertise, shared responsibility, mutual outcome. I. And of course, let's recognize again that in some organizations, the property management and property accounts function could be the same person. So how do they approach the obvious challenges of knowledge, experience, vigilance in the detail and separation of duties to avoid any risk or unfounded allegation of fraud? So as I said, who checks what? Well, what exactly are we expecting? What are we checking for? We're all fully aware of the potential for scams in our personal lives. You know, those unsolicited calls or emails allegedly from your bank, urging you to transfer funds or share a confidential detail. You'd hang up immediately, perhaps muttering something under your breath. You ignore the email while simultaneously marveling at how genuine it looks. So why be any less vigilant in business? Nobody wants to be that person who authorized a substantial payment to a scammer and then can't recover it. So let's go back to that communication from your recognized and longstanding landlord or their lawyer advising you of a sale of their interest. How does that communication come in? Is it email, PDF attachment on an email, hard copy, snail mail. And what essential information should it contain? Let's say it arrives by snail mail to the company secretary who considers who to pass it onto. Would it make any difference if they popped it into the accounts team's mailbox? Probably not. They should be fully aware of what's required next. Obviously it would be exceedingly useful if the letter told you what date they sold it on, who they'd sold it to. And by this I mean the actual legal entity name as registered at Company's house, not a Soundalike or a parent company or an umbrella company. More on that later, I. The transfer date is essential for any apportionment of charges, but also for recognition of the end of legal competency in any other instructions As you well know, when the former landlord steps away, their existing instructions to any managing agent or rent collection service immediately fall away. They don't control that lease anymore. They have no clout. Their asset managers hold no sway. They are to paraphrase, Monty Python, an ex landlord. But that leaves you hanging in midair. You have half the story. So you'd hope you also receive a letter of introduction and instruction from the newbie landlord, and maybe this is a company you already know and have frequent dealings with, or maybe not. Perhaps you feel an established bond or a sense of mutual respect and trust, or maybe not, and maybe that newbie landlord. Advises you that they've appointed a managing agent or a rent collection service, and maybe you have a third communication from that agent with their bank details, contact details, their tenant reference for you, which they'd like you to quote in all the remittances, which mailbox to send that remittance advice to, and possibly a summary of ledger balance being handed over by the outgoing landlord's agent. And there's a sum at the bottom, but you thought you were all paid up to date, right? Ideally, first to consider the incoming documents would be an experienced colleague in estate. Someone who's familiar with the usual players in the property industry follows the latest developments or changes in the market. Is aware of the typical relationships between, say, pension funds and their tax vehicles. First test, does everything match? Let's assume the outgoing landlord advised us who they sold it to. Does the incoming landlord's detail match exactly if they don't match? Should this trigger doubt? What's the connection? Has it changed hands again, or is this some complex and unclear corporate structure, or worse, still is some money laundering scheme at play. Do both parties agree the same date of transfer? What if there's a substantial gap between the date the outgoing landlord says they sold it, and the date the incoming landlord or their agent says they acquired it? Again? Variables should raise doubt. Is this just a slipup or did another party own it in the interim period? And who's entitled to the rent for those missing days? Can you keep it? Put the money in a piggy bank to fund the office party. Is there a clear competency of authority to make these statements and give instructions? No disrespect to office juniors and interns, but would their name show at company's house you'd expect an authorized signatory to sign the lease. So why not expect them to sign formal notifications and instructions? If in any doubt on the details, reach out to your network and validate at this stage near enough isn't good enough. Then again, in the ideal Venn diagram world, the accounts team would pick up the baton for the second stage. Immediate action. Suspend any automated charges and block any manual items in process but not yet released. Ask a question, will these still go to the old landlord or agent or to the new supplier? Don't release them till you're sure. You may never get back any mis paid funds. Next question. Do the stated details look strong enough to pass whatever requirements your business demands to set up a new payee as an approved supplier, and then get that setup started? Turnaround time is important for a supplier who could get agitated if a contractually due payment is late, even if they told you about the change at the absolute last minute. There are a bunch of things to mention here that even many competent and experienced landlords and their agents often neglect to include in their data packs. For example, they might provide their salt code and account number, but not the account name, and I'm not talking about their business name, but the name of the bank account as it appears on bank statements. This omission might typically fail the confirmation of payee, protocol or cop, which requires three points of verification to establish if a bank account is correct. You've probably come across this in your private banking transactions. If it doesn't match, you get a message asking, are you sure? And if you aren't sure, you stop and check. So why should business be different, especially with the size of the sums involved? But sometimes even if a diligent accounts colleague has pushed back to the aspiring new agent, pointing out a flaw in this area, the agent has been dismissive. It might sound like petty detail to them. Oh, what the heck is near enough? But that's how scammers work. If the accounts team can't get a sensible response, they should liaise with estates escalate. Seek a better answer from someone with more clout. I recall one escalation where the asset manager for a new landlord was just stubborn and belligerent. If it had been an external service provider, perhaps accounts payable could have escalated to the actual landlord, but this was the landlord's internal manager directly managing his employer's property business. They provided an invoice, it showed the bank details, and they were absolutely not interested in any of the queries or checks or controls that my client's accounts team put to them. It didn't matter how the teams explained that these checks and controls are as much to protect the genuine landlord as the tenant. The landlord's asset manager dismissed it as mere detail. They actually turned the tables citing that nothing in the lease obliged to them to comply with the tenants internal processes, which is true, yet really unhelpful. So it escalated within my client's business. Should they take the risk of paying, could they circumvent their usual protocol? You can imagine the hurdles and obstacles they were all eventually overcome, but that case remains in my mind as an isolated, standout example of lack of cooperation between landlord and tenant in the shared battle against fraud and other mishaps. Anyway. Let's get back to the plot. We've looked at who to pay. Another worthwhile check is how to pay. Now, you'll be familiar with the different platforms that banks use to make payments. Often these are chaps or banks. Chaps is faster than banks, but cost more per transaction. So many organizations save thousands of pounds each year by preferring snail paste bags. But banks isn't suitable for everyone, including landlords whose bank accounts are not in the uk, and also some that are. I came across one very frustrated landlord who never seemed to receive his rent unless he chased and got an emergency same day payment. I. His patience was stretched thin. This happened every time until my client's accounts team did a basic check, and yes, you've guessed it. His bank account was set up to receive only chaps, but the tenant's, regular outgoing payments were being processed by banks, so they were being rejected by the landlord's account straight back to the tenants bank, but nobody noticed. But then the same day payments, which were organized when he chased, were processed as chaps, so they landed. Okay. The ultimate solution was simple to amend the landlord's automated supplier details in the tenant system so that regular payments went out as chaps, not backs, and everybody lived happily ever after. But the moral to this story is if you don't want a time critical payment to bounce back over a processing issue is always wise to check the destination. Account aligns with your preferred method of payment. Don't assume. Now all these expectations from the tenant's perspective might work fine for non-property suppliers who provide pencils or cleaning services or stock for resale and come through a procurement channel. So don't get a contract unless they agree to the business' terms and conditions, but landlords and their appointed agents circumvent this procurement process. This often comes as a surprise to other areas of the tenant's business, such as their auditors, finance controllers, vendor team leaders. It can take some explaining that the tenant simply isn't in a position to negotiate the terms of business or to define how these new parties communicate their credentials. They, your legal landlord, your lease says you must pay them whether formally demanded or not, and you can check this bit if you read the lease. Sadly, there usually isn't anything in the lease to deal with how instructions for change should be issued. Some landlords and managing agents are helpful and provide everything you could ask for, and some are really awkward and need kid gloves to manage their delicate egos. But if they won't play nicely, won't meet the tenants, vendor team's expectations won't yield an inch. Then the accounts team might need some additional support from the estates team to help the vendor setup team. Just deal with it. So we've covered a lot of the tests, the challenges, the verifications, and ultimately we get to the point where the new payee is set up in the tenant system. Their bank details are approved for payments. Their few remaining steps seem easy just to release any payments that were held back while the change was being implemented, and making sure of course, that these funds go to the right party. But that's not the end of the process. We mustn't forget that accounts should obtain ledgers showing the balances being transferred from the outgoing supplier to the incoming supplier, and should then reconcile those ledgers. Don't blindly trust them. Make sure the incoming party and the outgoing party both show the same transfer balance. You'd be amazed how often they don't. Make sure you agree with it. In my experience, it isn't unusual for credit balances to be mysteriously left, unaccounted for and therefore not handed over. And it can sometimes take an age for the new supplier to reassure themselves of a competent handover. And through all that interval, the tenant remains at risk. My recommendation is to obtain these handover ledgers and complete the reconciliation in a rapid turnaround. The more time passes, the more difficult it will be to get the errors explained, corrected, and where relevant refunded and the final act as the curtain falls on this activity. Liaison between estates and accounts to ensure the documents are archived as an immediate point of reference for contact details. Also just in case there is later, any query from an auditor or whoever about the information that was exchanged and approved before those millions were released to some shady guy with an account in the Cayman Islands. So here we are, a simple task of recognizing that we have a new landlord and maybe a new managing agent turns into a complex minefield of risk management, compliance, corporate governance, as well as estates and accounts management. The then overlap between those two teams must be very strong here. This is where the money is. Thank you for listening to that Retail Property guy. Don't forget to explore more episodes and if you have ideas for future topics, feel free to share them below. For more information, visit that retail property guy.com. Thanks again for tuning in.