The last year has been a challenging time and it begs the question, from the landlord’s perspective, what have we learned? One thing for sure is that the average lease, a document that seems (for most landlords) to be like that favorite sweatshirt which, regardless of its worn-out look, is badly in need of an update. Landlords have long opted for certainty in their standard retail lease, but now the document requires flexibility and it needs to contemplate an uncertain future, a future where an existing document should not be thoughtlessly conformed for other projects and unwisely utilized without review when issues will surely arise. Think of your lease like you’d think of a car – do you want to buy a car that has features that are over a decade old and technology that has long been rendered obsolete, or a car that has the most current bells and whistles?
So, what should be considered? A partial list might include:
- How do you define the property? Is it a shopping center? If so, one might consider changing that term to “center” or “project” and remove lease references to the property being a “retail” project. It would be a good guess to suggest that properties today will incorporate more healthcare, office, and hospitality uses, for example — and the property definition will be important.
- CAM – Yes, much of the industry has gone to capped Common Area Maintenance (CAM) or fixed increases, but only a small number of landlords have elected to reset CAM in each option, or every five years. As we are projecting charges up to ten or fifteen years into the future, a reset protects the landlord. The tenant can, of course, have the new charge addressed before an option (and the cap can continue after the reset).
- Co-tenancy – This is surely complicated. As with CAM, why should co-tenancy continue into the options when we can hardly predict the future? The smart tenant (which is most tenants) will renegotiate at that time if it is important. Further, for much of the form text, we need to be sure to include spaces used for non-retail and non-food uses. Landlords should also consider whether there should be a remedy if sales have not been reduced.
- Rules and regulations – Some of these have not been rewritten in decades and they need to be. They need to take into consideration issues like masking, noise, signage into the common areas and other issues that are currently vexing landlords.
- Parking – The lease clearly needs to take into account current realities, like electric charging stations, ride-sharing areas, reserved merchandise pick-up spaces, short-term parking and valet parking, to name a few. Having the lease note a formula for parking at 4:1 (or some other pre-selected number) will be costly as code requirements are reduced.
- Signage – Again, there are so many digital opportunities that the landlord needs to be certain that it does not accidentally allow the savvy tenant to use its premises as a platform to broadcast light and media into the common area.
- No build zones – As more and more properties are redeveloped, landlords need to be sure that no build areas only exist with respect to the stated premises. If a premises is relocated, the no build should be modified or it should go away entirely. Of course, lengthy leases should include not just the right to relocate a premises, but also the right to terminate a lease if there is a major property redevelopment.
- Hours of operation – Let’s remember that different users are open at different hours and, as users change, we want to be sure that there are representations that a specific tenant does not have to open unless a predetermined percentage of other tenants are open, especially when some tenants (like office and healthcare) may not open on the weekend, much less in the evening.
- Construction – In so many leases, this text has not been revised in many years. Is it even close to right?
These are meant as examples. What was state of art twenty years ago is certainly not today. Updating your lease can be a relatively simple process, the cost of which would seem to be a fraction of the significant costs which may manifest themselves over time due to litigation and delays which may be readily avoided.