Online Alerts

RSS

Offering tenant improvement allowances (TIAs) is a great way to attract and retain small and new businesses that can’t afford the renovations they need to open shop. But it can also backfire if the tenant defaults before moving in or generating the revenues necessary to pay you back. TIAs also expose you to financial and liability risks. Negotiating the right TIA lease clause is crucial to avoid getting burned.

Q: Most tenants at my property require certain amenities and they won’t sign leases for space there if they don’t get them. But I’ve heard of circumstances under which office building and retail property owners have had to get rid of amenities. How can I carve out a right to eliminate amenities in the future if it becomes necessary?

Standard commercial net leases require tenants to pay not just rent but a proportionate share of the owner’s property taxes. Of course, property taxes are apt to fluctuate over time. Accordingly, owners typically include an “escalation” or “adjustment” clause in the lease enabling them to pass along to the tenant any tax increases that occur over the course of the lease. But getting a tenant to accept responsibility for a tax escalation is just half the battle; you also have to ensure that the actual escalation clause in the lease is clear and specific.

If you give tenants an early termination option, make sure it gives you the right to charge prorated amounts for brokerage commissions and improvement allowances when the tenant exercises an early termination option. In this video excerpted from their recent live presentation, What Could Possibly Go Wrong? Key Issues to Resolve BEFORE an Office Lease Is Signed, attorneys Robert Reichman and Jonathan Weiss discuss the issue here.

It’s among the least appreciated parts of the lease. But while rent, renewal, and other business terms command most of the attention, the so-called force majeure clause takes center stage when disasters occur. It’s at that point that both landlords and tenants recognize the importance of the clause and kick themselves for using generic boilerplate language rather than making the effort to negotiate a force majeure clause that makes sense for their particular situation.

Unlike mall food courts, food halls don’t just accommodate traffic; they drive it—and not just in malls but also at mixed-use, office, multifamily, and other non-retail properties. Like the mall food court, the food hall is a mix of retail eateries sharing space within a larger facility. The difference is that food halls offer not just fast food and shared seating, but a curated, high-end “foodie” experience supplied by local farmers, artisanal vendors, gourmet chefs, restaurateurs, cooking supplies sellers, etc. And they present distinct leasing challenges as well.

You can try, but savvy tenants are demanding that the rental value of an amenity space be excluded from CAM or operating expenses. In this video, excerpted from their live presentation on June 13, 2019, "What Could Possibly Go Wrong? Key Issues to Resolve BEFORE an Office Lease Is Signed," speakers Robert Reichman and Jonathan Weiss, both of Greenspoon Marder LLP, discuss this contentious issue. View the video here.

Boilerplate renewal and amendment agreements typically contain language indicating that the tenant’s obligations under the original lease survive and become obligations under the new arrangement. But they may also include contradictory language saying that the new lease “supersedes” the previous one. And when you put these clauses together, it could jeopardize rent payment and other tenant obligations from the original lease that you want to continue but don’t expressly spell out in the new lease.

Before you go into negotiations with a prospective tenant, make sure you have a financial analysis of the proposed lease, so you can tie every added dollar of capital investment per square foot to an amortized x dollars at a certain interest rate over the lease term.

If a prospective tenant isn’t a U.S. business or individual, it may not have sufficient assets within the U.S. to protect you if it eventually defaults. Preferably, the tenant can provide a U.S. guarantor. But if a non-U.S. entity or individual is the only available option, be sure to confirm that the guarantor has sufficient assets in the United States. And in the absence of a guarantor, consider using letters of credit or a security deposit.