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A retail tenant may ask you to let it use its space to sell certain merchandise and “accessories.” But by doing so, you may unwittingly let the tenant sell many more items than you intend. That's because the word “accessories” is so vague. It can mean almost any type of clothing or equipment, warns Toronto attorney Harvey M. Haber. And that could spell big trouble for you.
How You Can Get Burned
Here's an example of how you can get burned by letting the tenant sell accessories.
Identify all of the documents comprising the lease in any estoppel certificate you give to a tenant to sign, advises Arnold J. Kohn, general counsel of The Tower Companies. As an alternative, attach a copy of the lease and all of those documents to the estoppel certificate as an exhibit, he says. Then there shouldn't be any gaps when the tenant certifies that its entire lease is in full force and effect and that all lease amendments and modifications are true and correct, he explains.
If an existing tenant has an exclusive use right, don't agree to a broad use clause in a new tenant's lease (unless the existing tenant's exclusive specifically makes an exception for the new tenant's use), warns Denver attorney Neil B. Oberfeld. Otherwise, the new tenant could easily change its use to one that violates the existing tenant's exclusive, he explains. And then you'd be in hot water with the existing tenant.
If a strong retail tenant has either a performance kickout right or a reduced rent right, promptly audit the tenant's gross sales records if it tells you that it will exercise its right, advises Dallas attorney T. Andrew Dow. With a performance kickout right, the tenant can terminate its lease if its gross sales fall below or don't reach a minimum sales threshold during a set time period. With a reduced rent right, the tenant can reduce its rent under similar circumstances.
If you are engaging a real estate attorney for a new deal, don't spend time and money disclosing the deal's details to the attorney before you are sure that no conflict of interest exists that could prevent him from fairly representing your interests, says real estate expert Kevin M. Fogel. This advice applies whether the attorney is new to you or one with whom you have worked in the past. If you discover a conflict of interest after you have hired the attorney, you might have to change attorneys or law firms.
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