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If you signed a lease with an operating cotenancy clause, you may feel that you’re under pressure to keep the status quo at your center or pay the price by allowing the tenant with a cotenancy right to pay reduced rent or take advantage of other concessions if one or more other tenants close or go dark during the lease term and aren’t replaced within a designated period of time. But you don’t have to give a tenant unfettered remedies if that scenario arises.
It’s important to reevaluate your tenant restrictions after a post-disaster shakeup. Recent natural disasters and extreme weather have forced some tenants out of business or have forced them to relocate after their space has been damaged. And many shopping centers have felt the effects of a tenant shakeup. Aside from dealing with the financial aftermath, you should also take a good look at the new makeup of your center.
Q: I lease property to a wide variety of tenants, and I have leases that are technical and complicated. If a term or terms in one of these leases turned out to be illegal, what effect would it have on the rest of the agreement?
A common request from tenants is a “performance kickout right”—that is, a right to terminate the lease if its gross sales during a certain period fall below or don’t reach a certain dollar amount. But that’s treacherous for owners. Giving a termination right to a tenant opens the door for numerous problems: no rental income, reduced value of the center to lenders, and dark space that might violate your cotenancy clauses with other tenants.
Not all prospective tenants need architectural plans right away. But sometimes a prospective tenant needs to occupy new space so quickly that it wants you to start the buildout process before it signs your lease. You might agree to authorize your architects and engineers to prepare plans for the buildout to accommodate the tenant’s needs and severe time constraints. After all, you expect the prospective tenant to sign your lease.
While the holiday season can benefit your shopping center by bringing in more foot traffic and increasing sales, it can also create conflicts over festive signs and displays. You may encounter a tenant that puts up a large holiday display that isn’t in keeping with the appearance of your center’s aesthetic. But if its lease doesn’t prohibit it from setting up holiday displays or signs, you might not be able to prevent it from doing this, especially if its lease was entered into before you bought the center.
Commercial tenants typically want the right to “go dark”—that is, stop operating while continuing to pay rent—if their businesses aren’t generating enough revenue. “Going dark” can save tenants the cost of stocking and staffing the space they rent. But if you give a tenant the right to go dark, you may want to carve out a recapture right for yourself—allowing you to take back the space and replace the tenant.
To maximize your property’s value and profit, limiting premises liability should be a priority for you. Working with your property manager, who’s most likely to hear about and react to injuries before you do, can go a long way in avoiding personal injury litigation. To make sure your property manager understands the importance of preventing personal injuries and reacting to them appropriately when they do occur, make sure your property manager:
When you lease space to a tenant, it’s impossible to predict whether you’ll experience the unpleasant repercussions of accidents, injuries, or criminal acts that can be attributed to the tenant. These events can be costly, but as with most other risks involved in leasing space, you can plan for the worst and hope for the best. An airtight indemnification clause can ensure that you won’t be left paying the price for the events caused by your tenant.
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