Dos & Don'ts

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Unfortunately, tenant bankruptcies are something you’ll probably have to face if you own an office building or shopping center long enough. You need to take every step possible to protect yourself. The good news for shopping center owners is that bankruptcy laws give you more assignment protection than they give to owners of other types of properties. That is, you’re protected from an assignment that disrupts the tenant mix at your center. You can employ two strategies to put yourself in the best position to benefit from this protection.

Like many owners, you may have certain tenants that commit the same lease violation over and over. But they always cure—that is, correct—the violation before it becomes a lease default. For instance, they repeatedly pay their rent late each month.

If a tenant violates your lease but it doesn’t fall under a “chronic violations clause,” you’re probably required to notify the tenant in writing that if it doesn’t cure—that is, correct—the violation by a set deadline, you can take action against it. If you’re like many owners, you may ask your attorney to send this violation notice on your behalf—because you think that will make the tenant more apt to comply, or you’re too busy to send it yourself.

Although the model of the traditional shopping mall—one or more big box or anchor stores as a destination and smaller in-line tenants that benefit from the foot traffic—has changed over the years, the concept of a synergistic relationship among tenants continues. Convenience is key and if you don’t realize the benefit of synergy, which can create loyalty from shoppers who know they can get everything they need with one trip to your center, you’ll lose out and so will your tenants.

With the start of the holiday season coming up, kicked off by Halloween and ending after Christmas, you should start to prepare for the inevitable increase in foot traffic at your shopping center. You can do this by addressing two issues: traffic and time.

An eviction right in your lease is invaluable if things go south with a tenant who fails to pay rent, but you could undo what might’ve been a hard-won right for you in negotiations if you accept some, but not all, of the overdue rent even after you’ve started the eviction proceeding. That’s because, 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 doing so.

Sometimes a lawsuit stems from someone being injured in your tenant’s space. Savvy shopping center and office building owners know that they can protect themselves by requiring the tenant to name them as an “additional insured” on their liability insurance policies. But if your lease requires only that the party identified in the lease as the “Landlord” be named in the tenant’s policy as an additional insured it won’t give insurance coverage to everyone needing protection.

When negotiating your leases, you may want to include a recapture right that you can exercise if the tenant intends to assign its lease or sublet all or part of its space. And you may want to include a profit-sharing clause that will require the tenant to pay all or part of any profit it makes from an assignment or a sublet if you decide not to recapture the space.

If a tenant wants you to specify the number of its unit, store, or suite in the lease, then say in the lease that the tenant’s unit, store, or suite is “presently known as [insert Unit/Store/Suite number, e.g., 4B]. The phrase “presently known as” will give you the flexibility to change the number of the tenant’s unit, store, or suite during the lease term without having to get the tenant’s consent.

Avoid using Latin phrases—such as, ipso facto and inter alia—in your leases. Instead, use English words that mean the same thing. For instance, instead of saying “ipso facto,” say “of itself” or “by the mere fact.” And instead of saying “inter alia,” say “among other things.” This should help make your leases easier to read and understand.