Dos & Don'ts

RSS

Resist the temptation to allow a good tenant to stay after the lease expires, without signing a new one. It will become a “tenant-at-will,” giving it a potentially powerful status—even without a lease. A shopping center owner in Georgia was faced with this situation when a tenant-at-will claimed that it did not owe operating costs for the time period that it continued to run its dry cleaning business after the lease had expired.

Three years into a tenant's five-year lease, the tenant and a new business signed a new lease with the owner under which the new business owner was to take over the space, but the tenant would remain responsible for the remaining two years of its original five-year lease.

An owner claimed that a tenant failed to pay rent and other charges in its lease when due and additionally owed holdover rent for the third and fourth years of the tenancy. According to the owner, the tenant owed it more than $3.1 million.

The tenant alleged that the owner was unjustly enriched by the tenant's expenditures—including monies expended for landscaping, water, and garbage collection.

A tenant alleged that after he entered into possession of two units in a commercial building under a rental agreement, he found that the door lock had been changed and a “for rent” sign had been put up. He was told that he had been “locked out” because he failed to pay rent. He was let back in two days later. The tenant sued the owner for lost wages.

If your retail tenants install arcade machines in their spaces to attract customers and boost revenue, chances are you're not collecting all the percentage rent you're entitled to. Many retail tenants install assorted arcade machines—such as video game machines, virtual reality computer games, and pinball machines—in their spaces. These arcade machines (whether coin-, computer-, or credit-card operated) provide entertainment to customers and children who want a break from shopping.

If a tenant with a successful Web site turns its store into a service center, a display room, or merely a counter where customers can return or exchange purchases from its Web site, there may be no merchandise for sale—and that could spell bad news for your bottom line. The service center won't generate any percentage rent if the tenant doesn't make any sales there. And a space used only as a service center will probably draw fewer people to your center than a store that's fully stocked with merchandise for sale.

Pay telephones can be a good source of additional revenue. Despite the popularity of cell phones, many people still rely on pay phones because they don't have a cell phone or it isn't working properly. But your lease may not give you the unfettered right to install pay phones on the exterior walls of a tenant's space, without getting the tenant's permission first. And the tenant may withhold permission unless you agree to share the revenue generated by the pay phones.

Under unusual circumstances, an oral understanding may lead to a legally enforceable contract. But in the leasing area, that's rarely the case.

If you have a freestanding parking garage, make sure that if a telecom service provider (TSP) puts its antenna on the rooftop of your parking garage, you'll get paid for that use.

You may be negotiating a lease with a restaurant tenant that wants to be the only restaurant at your center to “specialize” in a certain type of cuisine'such as seafood. And it may demand that you agree in the lease not to rent space to any other tenant that specializes in that cuisine. But if you're forced to give in to this demand, you may be setting the stage for a dispute with the tenant, warns Boston attorney Richard Heller.