Businesses involved in the retail sector – either as corporate occupiers leasing space for stores, warehousing and distribution, or as property owners and operators leasing out space in high streets and retail parks – data is fast becoming a critical tool for those aiming to emerge from the coronavirus crisis and lockdown in a position of strength.
For both sides, having a better understanding of what is in your portfolio of leases and other key legal documents is vitally important when the sector is facing high levels of uncertainty.
At the start of the pandemic, governments around the world implemented lockdowns to help stop the spread of the virus. This had an immediate impact on the retail sector, which saw bricks and mortar stores shut overnight – leaving retailers’ online operations as the only source of revenue.
Many landlords, instead of acting in April and May, held off until June to see if tenants were going to make their rental payments.
Government lockdowns, however, are ending or winding down, and from an investor/owner perspective, they need to evaluate the parameters on their leases and find out how exposed they are.
Any tenant refusing to pay rent will force landlords to pursue legal action because the lease is still legally binding and there aren’t many protection clauses in them for pandemics. However, this will require a close evaluation of lease portfolio’s, so investors and landlords are equipped with all the correct data.
The occupier side is facing its own challenges – which is not good news for retail property investors. Retailers such as DW Sports, Harveys Furniture, Victoria’s Secret and Oasis and Warehouse Group have all gone into administration.
Other retailers wanting to avoid the same fate are reassessing their situation with a cold eye to closing down unprofitable or even borderline sites, or simply renegotiating terms with landlords. Additionally, many retailers with large head office spaces are looking for ways to downsize due to Covid-19 while accelerating the remote working culture.
Leases represent the largest fixed cost for many retailers and understanding and being able to accurately track what their legal obligations are and what flexibility they have in terms of being able to break or renegotiate terms is crucial to them.
They need to be able to quickly find out everything from their notice periods to penalties and what happens if they fall into arrears. Just like the landlords on the other side of the fence, occupiers need to get a grip on the data from their leases and other documents which are just as important.
The trouble for property investors/owners and retail occupiers alike is that many do not have the data – or anywhere near the necessary data – to hand and will need to find the technology to not just extract the information from leases but then to analyse it so that they can use it for strategic planning and assessing their legal position.
Right now, landlords are realising how bad the data they have on their leases actually is. Some have hundreds or thousands or leases and don’t even have the correct contact information abstracted to be able to serve a legal notice for tenants.
A landlord may serve legal notice to the tenant, for example, but the lease may also specify that it also has to be sent to the tenant’s legal team – which may invalidate the action.
Additionally, some leases may only have postal addresses, not emails, which causes even more delays in a situation that requires quick communication. As landlords comb through their leases they are realising that they are missing a lot of this crucial data – which can take weeks to manually extract.
On the occupier side, many retailers need quick lease abstraction to help them get a handle on payments and other obligations as they try to clean their balance sheets, or in many cases, work through an administration or bankruptcy process.
What the Covid-19 pandemic has shown us is that lease abstraction is no longer a task that can be done manually if you’re a landlord or occupier trying to capture the right data for better decision making, especially during a heightened crisis.
Lease data has been abstracted manually for over 40 years and has been focused on a few key areas such as the critical dates on each lease, rental payments and expenses – usually around 100 datapoints.
Lease abstraction powered by AI-driven technology can capture 800-1,000 datapoints in a fraction of the time that’s needed for 100 datapoints to be extracted manually.
The need of speedy data capture and analysis heightened by the Covid crisis when manually searching and extracting this data will be a mammoth task that just can’t be done in the available timeframes.
Often it would require hundreds or thousands of staff. Being able to type in keywords and have the relevant information come up immediately saves time, boosts efficiency and ensures staff can focus on tasks that are more beneficial to the company.
As we continue to navigate the crisis, technology, and in many cases machine learning and AI, will play an absolutely critical role for parties on both sides of the equation in understanding their rights, obligations and options in the time they have to do so – meaning weeks rather than months.
The result is to arm them to deal with the often-difficult situations that continue to arise from Covid-19 and lockdown.
*Abhinav Somani is managing director of Leverton Intelligence, MRI Software
<!– –> This post has originally been featured in Property Investor Today.