Know Your Basement?

In one parking contract negotiation, the Operator negotiated 28 pages (35%) out of the contract for the commercial real estate. Some clauses weren’t important, but others were critical. This exercise could potentially cost the Owner over $500,000 from clause changes around levies, insurance, maintenance, make good, ownership of data, audit, end of contract requirements, minimum service standards, reporting requirements and the definition of revenue. Car parks are unique, and each has different requirements to be addressed in the lease.

A publicised example of a derailed contact negotiation is the case of Secure Parking Pty Ltd v Woollahra Municipal Council [2016] NSWCA 154 (Secure Parking). The only winner in this lengthy contract negotiation was the lawyers. In the lower court, “Ball J held that Council was entitled to terminate the contract for repudiation when Secure refused to acknowledge the existence of, or perform its obligations under, that agreement, and assessed damages for loss of the benefit of that contract at $5,339,592, plus the cost of undertaking a second tender process at $122,829.” (www.maddocks.com.au). This was later overturned in the Court of Appeal and the council was required to repay the money plus interest.

Consider this: An Owner of commercial real estate installs car parks equipment at a Capital cost of $500,000 at the beginning of the contract. The contract states that the Operator must appoint an independent third party for quarterly maintenance for their parking equipment. This is overlooked and at the end of the 5 year contract, the equipment needs replacing costing the Owner a further $500,000. Had a quarterly review been in place the Owner would have gained a further five years life from the equipment before replacement was required. The additional $500,000 expense excludes unknown lost revenue from faulty equipment failing to process customer payments.

A regular parking review and reporting process is critical in maximsing your commercial real estate asset. One Owner of multiple car parks from a large fund did not pursue unpaid rent – which was overlooked by Operator for 10 months due to human error. In another instance an Owner did not send the percentage rent invoice for nearly $1 million – so no payment was made. The contract ended and a new contract was entered into with no invoice ever sent. Without agreed regular review and reporting in place, your car park could be missing out.

Large Operators have hundreds of car parks under management often using one strategy for all car parks. For a traditional business this makes absolute sense, but for Car Parking it doesn’t work. Remember the Golden Rule? No two car parks are the same. Each need their own individual analysis, strategy and execution. An Owner needs to take active strategic responsibility for their asset rather than rely on their Operator to provide the best strategy for their expensive parking asset at their commercial real estate locations