Navigating the complex realm of tenant consent is both an art and a science. It plays a crucial role in the commercial real estate industry. Acquiring tenant consent is not merely a procedural step but essential to effective property management. Tenant consent enables shopping centers to adapt and grow while balancing the interests of both landlords and tenants.
The RockStep team has dedicated years to mastering this intricate process, and I believe understanding tenant consent is essential for creating value and fostering strong landlord-tenant relationships. Handling tenant consent is not fun, but is critical to protecting and creating value.
Don’t worry. Investors are not expected to handle and navigate tenant consent themselves. Property developers and management companies are often responsible for this process, while landlords sometimes handle it themselves.
It’s important to know what qualifications to consider when evaluating developers and property managers you might collaborate with. Understanding the complexities of tenant consents and how they are addressed can help you assess and choose qualified investing partners who have demonstrated their capability to handle this challenging yet vital aspect of property management.
As an investor, you should expect the developers and management teams to possess the expertise, experience, and connections required to understand tenant consents thoroughly and incorporate them into a property's overall strategy.
By the end of this article, you will understand the importance of tenant consent in property developments, how it affects the landlord-tenant relationship, and why it is crucial to maintain trust for obtaining tenant consent.
In simple terms, tenant consent is a clause in a tenant lease that requires the landlord to obtain the tenant’s consent before making serious and lasting changes to the property or tenant mix.
The most common situations requiring tenant consent involve exclusives and use modifications, both of which are situations that require unique negotiations:
Tenant consents ensure that a shopping center's integrity and functionality align with what the tenant needs and expects from the agreement. Tenants invest heavily in their locations and want assurance that the environment won’t change in a way that negatively affects their business.
Additionally, consent is critical for fostering growth. Many malls built 20-50 years ago are too big for today's retail needs. Tenants understand this reality, and they're often willing to consent to transformative changes—like adding multifamily units—because they recognize that having 200 new residents providing energy to the mall is better than having vacant space.
However, this recognition doesn’t mean that the process is easy. Consent must be negotiated carefully, with clear protections for existing tenants' rights and operations. Investors should recognize that developers must navigate these complexities to harness a property's full potential. Evaluating a landlord’s ability to manage these relationships can be a key factor in investment decisions.
For example, at a RockStep Capital property in Janesville, Wisconsin, consent was needed from tenants to convert a former Sears building into an indoor sports complex. Tenants like Dick’s Sporting Goods and Kohl’s were concerned about parking and signage, even though the new development would likely benefit the center overall.
In the end, through healthy communication and open cooperation, the RockStep Capital team reached agreements with these tenants and gained their consent to move forward with the development of the sports complex.
Securing consent can be a lengthy and complex process. Some tenants use the consent process as a profit center, demanding financial concessions or lease modifications. Examples include extending lease terms, granting additional options, or even direct monetary compensation.
In some cases, tenants use the process to create a power imbalance, even going as far as holding back consent until they need something from the landlord, and turning the interaction into a trade that benefits them.
Sometimes, it’s like juggling multiple plates—a process that requires finesse and relationships built on trust. Developers and management teams must be adept at managing these multi-layered negotiations, and investors should choose developers with these capabilities.
You might wonder,
What’s the worst that can happen if a landlord just moves forward with a project without first getting tenant consent?
Well, landlords who do not obtain the required consent face significant risks. In the worst case, tenants can seek injunctive relief, which can halt the project entirely.
Injunction relief is when landlords try to sneak around acquiring tenant consent, and they are caught by the tenant and forced to meet some kind of demand for this major breach of trust and contract. Often, these demands include lease termination, reduced rent, or even lawsuits for damages.
Ignoring tenant consent doesn’t just jeopardize individual projects; it undermines the credibility and long-term viability of the landlord-tenant relationship.
Additionally, some poorly drafted REAs or lease agreements can create vague areas in contracts that lead to confusion and disputes. Landlords must ensure that their lease agreements are clear, enforceable, and detailed, as investors like you rely on their expertise and industry prowess to counteract these risks.
Maintaining good tenant relationships is essential to facilitating consent. For the RockStep Capital team, I emphasize the importance of punctuality, honoring commitments, and being easy to work with. Good relationships are a two-way street. When a landlord demonstrates reliability and runs a clean, well-managed property, tenants are more likely to cooperate.
Establishing trust takes time and effort, but it pays dividends through smoother negotiations, faster approvals, and a stronger sense of partnership. For landlords, building these relationships is as important as the properties themselves. Developers and management companies are responsible for demonstrating this competency to investors, ensuring that tenant relationships are leveraged for mutual success.
In my experience, communication and timeliness are key. You can’t spring a radical change on a tenant and expect them to sign off on it by Friday. Communicating early and often is the easiest way landlords can avoid tenant disputes.
At the end of the day, no one wants to feel blindsided. If you are upfront and reasonable, you are more likely to get the green light.
Tenant consent also impacts property value and desirability. Properties with flexible or expired REAs can attract buyers by offering greater adaptability. Additionally, securing consent for future developments—such as multifamily units—can significantly enhance a property’s marketability.
A forward-thinking approach to tenant consent enables landlords to stay competitive in a rapidly evolving market. Landlords can unlock opportunities that benefit all stakeholders by aligning property goals with tenant needs.
Developers and property managers must integrate this approach to ensure their properties remain competitive and appealing to investors. For investors, understanding how tenant consent influences a property’s growth and adaptability provides a clear lens to assess whether a developer or management company is truly equipped to deliver value.
At the heart of successful property management is effectively navigating tenant consent. These agreements shape the trajectory of shopping centers, influence property values, and define the quality of landlord-tenant relationships. Whether negotiating with anchor tenants, handling exclusives, or adapting to evolving market needs, the process requires expertise, patience, and strategic finesse.
Overall, success with shopping center operations comes from not just meeting the requirements but excelling in the process. By approaching tenant consent with clarity, collaboration, and foresight, landlords can create thriving shopping centers that benefit all stakeholders involved.
On the other hand, by understanding tenant consent, investors can better evaluate developers and management teams and ensure they partner with those with the necessary skills and track records.