Shopping Center Lease Agreement: Everything You Need to Know
A shopping center lease agreement is used to solidify the terms between the landlord of the shopping center and the individual leasing the space.3 min read
A shopping center lease agreement is used to solidify the terms between the landlord of the shopping center and the individual leasing the space. A shopping center lease, also called a private contract, will state the agreed-upon rent and the length of time the lease will cover. When entering the agreement, the tenants may be at a disadvantage, owing to the landlord having more experience negotiating commercial contracts. The lease the landlord provides will not favor the tenant. Therefore, an attorney should review the contract to look for stipulations that are of a detriment to the tenant.
Tenant Responsibilities and Limitations
The responsibilities of the tenant include the following:
- Pay a base rent that is based on the store's square footage.
- Pay a percentage of gross sales (in some cases, not all).
- Pay a portion of expenses spent to maintain the shopping center's common areas.
- Pay a portion of the shopping center's property taxes.
The tenant may request that the lease includes an "option to renew" clause, which provides the ability to stay in the space when the original lease ends. Additional details that may be specified in the lease include the limitations of what changes can be made to the space, such as:
The lease agreement may limit what types of businesses can run in the space and the distance the business is to any competitor's business.
What to Consider Before Renting a Shopping Center Space
The lease agreement should be reviewed for clauses that impact the tenant. Some examples of the clauses and specifics to look out for include:
- Tenant reimbursement of taxes and additional governmental charges.
- Poorly written clauses that alter how much the tenant owes (can be an increase or a decrease).
- Confirm all of the fine print is read and understood.
Tenants should not see the lease agreement as a non-negotiable offer. The lease should be fully reviewed and negotiated. Landlords do not want vacancies and will work to fill all their spaces. Avoid the mistake of signing the lease as is, or boilerplate, as such clauses are written to benefit the landlord and will be impossible to negotiate after the lease is signed.
When reviewing the lease agreement, do not rush into signing. Take the time needed to read the contract, negotiate, and have legal counsel review all details. Do not fall to the pressure of signing too soon.
Negotiating a shopping center lease can be difficult when looking out for the tenant, especially tenants of small businesses. In addition, the landlords may add on additional fees that increase the total overhead for the tenant. This may include marketing fees and maintenance fees.
The recommended steps for negotiating a shopping center lease agreement include:
- Reviewing the lease agreement.
- Marking up any changes, comments, or concerns with the content and language of the contract.
- Meeting or having a conference call to review the changes, comments, and concerns.
- Negotiating and compromising as necessary.
Key Lease Provisions
Shopping center leases will include several key lease provisions, such as:
- The hours and days the store must remain open. In most scenarios, the store must be open at the same time as other retailers in the shopping center. If the business has nontraditional hours, this must be negotiated in the lease.
- Co-tenancy conditions protect the tenant from any decrease in revenue when anchor tenants close their store, and in turn, foot traffic is reduced. This also applies to the percentage of businesses in the shopping center.
- Common Area Maintenance Costs (CAM) will be listed with the tenant's share of the costs, usually in relation to square footage.
- Exclusivity may be included in the lease agreement and will prohibit competitors from leasing space in the same shopping center. The terms of exclusivity must be clearly written in the lease agreement.
- Exclusivity terms go to the tenant with seniority. Any potential new tenants will need to confirm they are able to run their business as needed before signing.
If any of the provisions of the lease are in breach, the lease will state the penalties to be assessed. Penalties may be in monetary damages, termination of the lease, and possibly, the inability of the landlord to rent to the competitor.
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