Key Takeaways

  • A strip center lease often includes obligations like CAM fees, exclusivity clauses, and co-tenancy protections.
  • Tenants should understand legal protections, such as limits on pass-through expenses and language translation requirements in certain states.
  • Common lease pitfalls include hidden costs, ambiguous renewal clauses, and operating hour restrictions.
  • Legal counsel can help negotiate favorable terms, particularly for small businesses with limited bargaining power.
  • Recent laws, especially in California, may impact lease terms for smaller tenants, offering enhanced consumer protections.

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:

  • Reorganization.
  • Redecoration.
  • Repainting.

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.

Evaluating the Physical and Strategic Location

Beyond the lease terms, tenants should evaluate the physical condition and strategic potential of a strip center location. Consider the following:

  • Foot traffic and visibility: High-traffic areas generally offer better exposure.
  • Anchor tenants: Businesses like grocery stores or national chains drive consistent customer volume.
  • Parking availability: Sufficient and accessible parking is essential for customer convenience.
  • Competitor proximity: A competing business in the same strip may violate exclusivity, or worse, erode your market share if not prohibited by lease terms.

Assessing these factors can help avoid leasing a poorly performing unit, even if the lease seems favorable​.

Understanding State-Specific Lease Protections

Some jurisdictions, such as California, provide enhanced protections for tenants leasing space in strip centers or shopping centers. A notable example is Assembly Bill 2559, which impacts certain smaller-sized tenants by:

  • Requiring commercial leases to be translated into the tenant’s primary language if lease negotiations were conducted in that language.
  • Restricting the landlord’s ability to pass through specific operating expenses unless clearly itemized and agreed upon.
  • Mandating disclosure of certain business terms, improving transparency for less-experienced lessees.

These changes aim to prevent miscommunication and unfair expense shifting, particularly for small businesses and non-English-speaking tenants​.

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.

Best Practices for Negotiating a Strip Center Lease

When negotiating a strip center lease, small businesses should:

  • Hire legal counsel early. Attorneys understand landlord-friendly clauses and can negotiate favorable terms.
  • Request a CAM cap. Limit the amount the landlord can charge for maintenance increases.
  • Seek co-tenancy protection. If anchor tenants leave, request the right to reduce rent or exit the lease.
  • Ask for build-out allowances. If the space requires tenant improvements, negotiate who pays and who manages the work.
  • Clarify exclusivity terms. Ensure your business model is protected from competitors in the same strip center.

Preparation and negotiation help avoid financial surprises and operational restrictions that can hurt your business long-term​​.

Common Legal Issues in Strip Center Leases

Several legal complications may arise during the lease term:

  • Ambiguous renewal terms: Some leases are vague about renewal options or automatically renew without tenant consent.
  • Personal guarantees: Landlords may require personal liability, which can be risky for sole proprietors.
  • CAM cost disputes: Tenants often dispute how common area maintenance (CAM) fees are calculated or allocated.
  • Use and signage restrictions: Lease terms may prevent certain business activities or control how signage can be displayed.

Having a commercial lease attorney review the agreement before signing can help preempt these issues and ensure a tenant’s rights are protected​.

Frequently Asked Questions

  1. What is a strip center lease?
    A strip center lease is a commercial agreement allowing tenants to rent retail space within a shopping center, typically in a linear or L-shaped configuration.
  2. How are CAM fees calculated in a strip center lease?
    Common Area Maintenance (CAM) fees are usually allocated based on the square footage a tenant occupies relative to the total leasable area.
  3. Can I negotiate terms in a strip center lease?
    Yes, most commercial leases are negotiable. Tenants should not accept boilerplate terms without legal review and adjustments.
  4. What protections exist for small tenants in strip center leases?
    States like California have introduced laws requiring translated leases and clear disclosure of operating expenses for smaller tenants.
  5. What should I look for before signing a lease in a strip center?
    Check for co-tenancy clauses, exclusivity rights, CAM caps, renewal options, and the strategic value of the location (traffic, parking, anchor tenants).

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