Business Leasing Guide: Section 1.6 Point of Sale System
Typically, for retail malls, the landlord would install POS systems at the tenants’ costs, which include monthly servicing and maintenance cost.
The POS system collects the shops’ sales data for analysis of cistomer spending patterns and mall patronage.
Some landlords use the data collected to guide their tenants in improving their businesses.
Both parties should agree upfront on all costs to be borne by the tenant.
As the tenant will be revealing confidential business information to the landlord, establishing a non-disclosure agreement will help govern the use of such data collected.
Parties could also consider analysing only key indicators or a bundled sample of sales data to mask the intrinsic details.
Parties could explore other technologies and systems to capture customer spending and patronage.
What Frequently Happens in Practice:
The key concern a tenant has is how a landlord may make use of the tenant’s sales data against the tenant. A non-disclosure agreement will not be very helpful in this case.
What we frequently see in practice is that the landlord is able to better gauge how much more rent a tenant can afford to pay given the sales data. We have seen many cases of landlords asking for higher rents upon renewal even as the sales of the tenant has clearly fallen over the years. This information asymmetry, predictably, will bring the tenant closer and closer to their breakeven sales with every renewal. It is naive to believe that the landlords use the data collected to guide their tenants in improving their business as described in the guide.
Furthermore it has also become a common practice across the industry to require the sales data be audited by an audit firm. The cost of the sales audit is often also 100% borne by the tenant. Increasingly sales audits are required even for short-term rental of event space.
SG TUFF Recommendation:
We see merits in systematically collecting and analysing tenants’ sales data. What we have a problem with is how one-sided it is currently. The tenant pays fully for the cost of submitting and maintaining the sales data to the landlord while the landlord is not obliged to share any aggregate information in return with the tenant.
As with the legal fees and stamp duty, we recommend that it be mandatory that the landlord and the tenant share equally the servicing and maintenance cost of submitting sales data to the landlord as well as the fees for the sales audit. When one party incurs zero implementation cost, that party does not need to exercise prudence or do any cost-benefit analysis. More is always better.
We also recommend that we apply reciprocity to the collection of sales data and make it mandatory for the landlord to share the (1) aggregate gross turnover, (2) average occupancy cost (rents collected/gross turnover) and (3) average sales per square foot of the entire property on a monthly basis with the tenant.