Drafting Tips

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Ideally, you’ll want to keep square footage and dimensions out of your lease or attached floor plan because those numbers can easily become the focus of a dispute. But you may have to include square footage or dimensions in certain circumstances—for example, if you’re dealing with a highly desirable prospective tenant that demands this inclusion, or the fixed rent or a rent escalation is governed by a formula that includes the square footage number.

Many tenants need major improvements made in their space in order to accommodate their businesses. Franchisee tenants need space that looks a certain way, retail clothing stores need shelving, and restaurants might need built-in seating. This will probably be spelled out in the tenant improvements section or other sections of the lease.

Office building tenants with long lease terms may be concerned that their office space will begin to look shabby in the future. These tenants argue that the rent they’ll be paying in the last few years of the lease won’t reflect the reality of wear and tear like peeling paint and stained and frayed carpeting. If they demand that you refurbish items in the space at a set future date—and pay for all or part of the work—should you agree to it in the lease?

Commercial real estate lease assignments might seem straightforward for both office and retail space: A tenant that wishes to leave its space finds another tenant willing to take over the space and the original tenant’s lease. And, typically, the lease’s assignment clause will dictate the requirements that both the new and original tenant must meet in order to do this. But don’t be fooled into thinking that because the concept of an assignment is basic, your assignment clause can be as well.

If you have a tenant that fails to pay its rent, you may decide to send it an eviction notice so that you can kick it out of its space—and even start the eviction proceeding. But if the tenant pays you some—but not all—of its overdue rent after getting your eviction notice (and after you’ve started the eviction proceeding), there might be an unexpected problem. If your lease doesn’t say whether you can continue to evict the tenant after accepting its partial payment, a court might decide to bar you from evicting the tenant.

A prospective tenant that’s negotiating to lease an entire building or a large space may want to inspect the condition of the space or the underlying property before signing the lease. For example, it might want to do environmental testing or have an engineer or contractor check the condition of certain aspects of the property. Don’t give a tenant unfettered access to enter the building before you’ve signed a lease with it.

Despite an upturn in the economy in many areas across the country, many shopping center owners, especially in areas that are still depressed, are desperate to fill vacancies at their centers. Prospective retail tenants, particularly small retailers, may be hesitant about going into centers—especially if they have to commit to a long-term lease—because they’re worried that their businesses may fail. They may have to downsize, change their retail strategy, or terminate their operations altogether.

It’s common for a lease to give an owner a share of any profit a tenant makes if it sublets or assigns its lease. But if you don’t specify this in your lease with the tenant you’ll miss out on this opportunity. And even if you do specify this in the lease, you still need to stay on top of the situation. Just because a tenant is required to share a profit doesn’t mean it will come forward and volunteer to do so.

It’s crucial that your tenants are adequately insured. To make sure of this, your leases may list by name the insurance coverage that the tenants must get and maintain. If you think you’re covering all your bases by writing this into the lease in such a specific way, you could actually end up boxing yourself in.

As a retail property owner, you’ve certainly spent time considering the tenant synergy—that is, stores functioning together to draw shoppers that a center normally wouldn’t capture without them as a group—that will maximize profits. That’s why the use clause in your leases with tenants is so important; it requires them to use their space in the way that you’ve determined is the best for your center, and prevents them from using the space in a way that would interfere with your plan.