Last week's debate at the annual SA Council of Shopping Centres (SACSC) over small tenants didn't achieve much. But it did reveal a groundswell of support for the regulation of landlords, which, it is hoped, will ensure fair treatment of mom-and-pop stores and promote black empowerment.

The discussions were between tenant activist Marcel Joubert and economist Brian Kantor, and they did agree on one thing - that proper competition will reduce abuse of small tenants by landlords. But Joubert says regulation will promote competition; Kantor argues that competition between centres is intense and regulation will stifle it.

Centre owners say Kantor has presented an unassailable case against regulation to protect small tenants. But getting him to debate against Joubert, instead of doing it themselves, has lost them support and could bring tenant protection legislation closer.

Kantor, UCT economics professor and former chairman of Cape Town's V&A Waterfront, says the market system is vulnerable and Joubert's attempt to get it regulated is a serious threat.

Kantor says if Joubert succeeds, "the protection of the marketplace", where landlords and tenants freely contract for space and shoppers decide where to buy, will be compromised. This will reduce the upside potential for existing investors, mainly pensioners, as well as investment in new centres.

Kantor argues that regulation would be an opportunistic interference in the free market. Small tenants want regulation so they can transfer the property rights of landlords for the renewal of leases over to themselves.

Joubert argues that large shopping centres are "privatised cities" without the checks and balances that prevent owners from abusing small tenants. The industry is "structurally designed to put the small guys out of business", he says.

For instance, property owners have large holdings in their major tenants, for whom rents average 2%-3% of their cost of operation. The rent for small tenants forms 17%-20% of their operating costs. This compares with international norms of 9%-10% for majors and 10%-11% for mom-and-pop retailers, says Joubert.

Because small tenants are cross-subsidising the majors, this is anti competitive, argues Joubert. He has complained to the Competition Board on behalf of the SA Council of Retailers and says competition can be assured only by regulation.

Shopping centres, like all private businesses, are not democratic but hierarchical, retorts Kantor, "and it's price differentiation, not cross-subsidisation".

Perhaps most telling was the response of outsiders at the conference. In his speech to the conference, marketing expert Richard Duncan of Cape Town's The Partnership, warned: "Don't for a minute doubt that regulation is coming."

Junior staff of shopping centres and the institutions that own them concede that small tenants are abused by the landlords' staff. This includes harsh lease conditions and what Joubert calls "exploiting their power at the point of renewal". The growing retail membership of the SACSC also appears to support Joubert.

Adriaan Nieman, CEO of Pareto (a R4bn retail fund) denies that there is abuse. Joubert accuses Nieman of being the hobgoblin of small tenants, who allege that his staff use "Nazi tactics".

"I am personally aware of every lease signed, most of which cross my desk," says Nieman. "So I would be aware of any abuses."

Nieman says Kantor dealt with the issues and there is no need for either self-regulation or legislation.

But it's hard to say whether Nieman's view represents all landlords. Old Mutual Properties head Ian Watt has taken the lead in helping develop greater retail skills among his small tenants at regional centres such as Cavendish in Cape Town and Gateway in Durban. Landlords believe that lack of education is the biggest cause of the high failure rate among mom-and-pop stores in SA shopping centres.

Kantor concedes that regulation is likely. It is already in place in France, Australia, Britain, America and elsewhere. But the main motivation for regulation in SA is, perhaps , the need to give previously disadvantaged retailers the opportunity to break into the prime shopping centres rather than to protect the small existing tenants. And this may also clash with the interests of existing and mainly white mom-and-pop stores.

"How can new tenants get into shopping centres if the existing tenants have the right to renew their leases indefinitely?" asks Kantor.

Financial Mail