It’s no secret that management companies represent the interests of a building’s ownership. They are hired to do everything in their power to ensure that a piece of real estate brings a steady profit to its owners for many years. On the other hand, the tenants are the project’s source of income, and much depends upon their satisfaction and the success of their business. Thus, management companies face a daily dilemma: how to satisfy an ownership eager to squeeze maximum profit out of a building, and at the same time satisfy the tenants trying to get the maximum range of services for the least amount of money.

The topic of cooperation between tenants and management companies is full of contradictions. The two sides may not take one another seriously—tenants generally consider the ownership as their direct partner, and the management company as a sort of go-between. The management companies, for their part, see the tenants as a source of revenue (often management companies handle tenant overturn). Meantime, they are as necessary to one another as air. Tenants cannot work effectively without the necessary services of the management company, while the management company would work unrewarded if they were unable to create a level of comfort for the building’s tenants, who would look for a share of the market elsewhere. Of course, the ownership also figures into this interdependence, both by controlling the work of the management company and through interaction with the tenants, but it is during working hours that management companies and tenants come into direct, daily contact.

Harmony Is Worth More than Gold

The basis of cooperation between tenants and management companies is a harmonious relationship. What document establishes the cooperation between the two? Clearly, it is the leasing contract, wherein the ownership and the tenants come to an understanding. It articulates the conditions and responsibilites of both parties, and forms a model for the expectations of the two sides. So, for example, should the ownership and the management company sign an agreement, it is the management who is then legally responsible for the function of the building, removing the ownership from day-to-day operations. “The relationship between tenants and a management company can fall into three types of interaction. The first and most common: the management company represents the interests of the ownership in the form of power of attorney. In that case, the tenants are obligated to the building’s management to fulfill all of the terms spelled out in the lease. Considering that the management company is the acting owner, they de facto dictate the conditions of the contract,” expained Mikhail Getz, head of the commercial real estate department at Blackwood. “The second type of relationship is when an owner personally signs a lease with the tenant, and the management company reaches an agreement with the tenants over services, technical expolitation, electrical outlet, etc. In that case, the management company has less authority over the tenants. The third type of relationship is when the ownership signs a lease directly with the tenant, agreeing to provide all necessary services and receive full payment per sq meter of retail space, while the management company is hired through a separate agreement with the object’s owner to provide technical exploitation, cleaning services, security, etc. They then turn around and sub-contract to cleaning services, security companies, etc.” It is also possible for the ownership to distribute the obligations among any number of management services. In that case, there is practically no official contact between tenants and management, in that a larger number of companies are involved in the management procedures of the building, lessening direct interaction with the tenants. Meantime, the ownership maintains complete legal control over the object, while the management companies only become involved in the hypothetical situation of an infraction of the lease, in which case they inform the ownership.

“In our practice, we use a structure where we arrange for management after concluding a lease with tenants that leaves the rate of lease, payment schedules, etc. in the hands of management. This frees the ownership from solving inessential arrangements like budgeting for particular operational expenses, setting fees, setting payment dates, etc., that can be solved without the direct involvement of ownership,” explains Tatiana Krasnova, administrative manager of Sawatzky Property Management.

The more detailed the leasing contract, the greater the number of problems that can be avoided between tenants and management companies.

In the leasing contract—the most important document regulating relations—specialists advise clearly defining legal obligations of each party (ownership—tenant), as in the future this can save management from serious problems. The parties should specify whether a tenant can sublet space; if yes, then under what conditions. It’s necessary to articulate whether or not whatever is not forbidden in the contract is legally permissable in the pursuit of a tenant’s own interests.

In a leasing contract the type of business of the tenant should be spelled out, the number of personnel and the potential outfitting of the leased space in order to avoid future misunderstandings, as, for example, the rennovation of space from one function to another, or a heavy flow of clients to the tenant’s business that could inconvenience other tenants. “Management of real estate is made up many considerations,” said Marina Velikoretskaya, general director of Colliers International FM. “As an example, one of the common conflicts revolves around smoking. Everyone wants a clean, attractive space, on par with international standards, but no one wants to set the precendent to achieve those conditions. If we ban smoking in a class A office structure, that leads to disgruntled clients asking where do the smokers go? The question comes up: will the owner provide a smoking area? Naturally, there is no such area. The owner should decide before a building is opened for lease, whether smoking will be prohibited in all public space (excepting the tenants’ offices), or will there be a specially equipped smoking area? And that decision must be stated in the lease.”

The technical points of the document should spell out the exact size and configuration of the leased space, the property and equipment provided a tenant, its condition, the possibility of construction and reconfiguration of the space, the engineering and communications networks provided, and a list of permissable activities.

In the lease it is a good idea to assign responsibility in the case of unfoeseeable technical situations (fire, atmospheric leaks, flooding), raising the question of insurance of the space and property. The more specific, the better when spelling out very important points of the agreement regarding leasing rate calculations, schedules, order of payment, services provided to the client in the object, their cost and amount, etc. “Complications with tenants can arise when they begin demanding free services, unanticipated in the lease, especially in those cases when the lease only vaguely defines their number or when management of the building, in violation of rules, begin to offer servives on their own initiave (or, not wishing to spoil relations with tenants).” said Boris Schukin, director for work with clients at Forum Management. “The only way out this situation is to hold negotiations, as a result of which the management company and tenant can sign a separate protocol or agreement in which it will be clearly stated what the management company does according to the conditions of the particular agreement in return for fees paid to the owner, and what services are additional and paid for directly by the tenant to a management company.”

In the Midst of Disorder…Keeping Order!

A lease is a general document to establish rules of conduct of tenants in the buiding. The document usually includes articles under the rubrick: instructions for tenants. The document significantly eases the stay of tenants in the object—here given answers to many practical questions: rules and regulations, terms of maid service, repair, etc.

Usually instructions and rules pertaining to an object are easily met by tenants and do not limit the reasonable exercise of their rights. Anna Derkan, general director of OOO PN. Ekpluatatsia Nedvizhimosti notes that in the case of violations of these rules, various sanctions and fines are spelled out, including the early termination of a lease.

The document must also spell out in a general way the building’s working regieme. Regulations can vary significantly depending upon the function of the object. Regulations apply to all interested parties: tenants, owners, management companies, etc., and is binding under civic and federal law. “The regulations contain information about the working regieme of the object, fire safety (smoking zones, etc.), registration of working personnel and visitors. Exits and entrances are designated, as are evacutaion routes, questions addressing safety in extreme circumstances (fire, terrorist acts, earthquake, flood, hurricane, etc.), telephone numbers are provided to call in these situations,” said Maikhail Gtez.

Live in Harmony

Contractual relations are important but are in no way the only factor influencing the relationship between tenants and management companies. It is a competent policy of a management company to encourage conscientious tenants: promptly responding to clients’ requests and complaints of, organizing special events, parties and holidays create loyalty among companies staying in the object, which can do wonders.

The most widespread mistake of management companies in their realtionship with tenants is stifling the flow of information. A tenant has many questions related to a building’s function, engineering networks, implementation of this or that work in an office. To receive answers to these and other questions is often impossible—there is simply not a mechanism for the reciept and analysis of information from clients. “It is essential from the start to capably channel information to and from tenants. Do not allow any direct type of relationship between technical personnel and tenants. To maintain reciprocal communication and convey a tenant’s desires is as important to management, as providing administratve services,” said Anna Derkach. “incoming and outgoing information should pass through one ‘window’. Your tenants should not call the head engineer with technical problems or the maid about a dirty bathroom. Only under a system of single window can the building’s management control inadequate work of personnel and correct it, and thereby more effectively meet the needs of tenants.” In several business and retail canters, management companies set up special boxes to gather information from tenants, or provide a separate telephone number for complaints and suggestions.

To clarify leasing issues for tenants, some management companies create special informational publications—booklets, brochures, etc. “Here should be the most laconic and clear-cut list of personnel working in the building—telephone numbers, the names of managers, what kinds of services are provided, what number to call in case a question arises,” said Marina Velikoretskaya. “There should absolutely be information about what to do in the case of an emergency, questions relating to parking, smoking zones, etc. Preparing such a booklet, you needn’t simply distribute it, but also provide commentary, answer questions, give additional information.”

In relations with tenants, the ability to meet the needs of clients is very significant. Property Management agrees with the American understanding—namely, communication is the basis of business.

To establish excellent relationships today, special seminars are offered for tenants of office/retail centers. The goal of these events—to evoke the loyalty of clientele.

Especially exemplary tenants are encouraged in a business framwork—small lowering of rates (for anchor tenats), providing a choice location, etc. In the opinion of Blackwoood, however, a management company must not overstep the bounds of professional relations with tenants, leading to a violation of the regieme and agreement. Personal sympathies and long-term cooperation should not lead to active lobbying for the interests of a tenant. This is a dangerous path for a management company, grounds for intrigue and innuendo that does not lend itself to the image of a serious and stable structure. “It’s worth remembering that a management company represents the interests of the ownership of an object, holding tenants to the conditions of their lease. Therefore there are cases when managers have to refuse the requests of tenants that are in conflict with the regulations of the lease,” said Tatiana Krasnova. “For example, tenants are strictly forbidden to use the space for unintended purposes—block evacuation routes, etc.”

Among the universal rules, if not most easily observed, allowing for the preservation of norms of a working dialogue with tenants is the priority of building positive and respectful relations between mangement company personnell and their clients. “Any deviation from the code of conduct, sign of disrespect, or authoritarian attitude in tenant-management relations is categorically unacceptable and can do irreparable damage to the reputation of a management company and lead to a premature termination of lease,” said Boris Schukin.

In addition to attentiveness, responsiveness and flexibility in relations with tenants, a management company should find ways of solving the most non-standard issues delicately, remembering that the comfort of building’s tenants is one its most important duties.