When leases for shopping centers are being drafted, they can be more difficult than most other commercial leases. In a shopping center, the owner wants the leases to be as uniform as possible, but knows that each lease must have variations to meet the individual tenant’s particular problems in business and in certain size or shaped spaces.
Here are some suggestions of items that should be covered in your shopping center leases. There could be many more depending on each property.
• Type of Operation; What is the business? The lease must clearly state the type of business conducted in this unit.
• Effective Date of Rent; The minimum guaranteed rent should commence a specified number of days after the center has completed the premises or when goods or services are offered for sale to the public, whichever of these two events occurs first.
• Amount of Minimum Rent; The lease states the monthly and annual rent. It should also provide that if the gross leasable area is larger than that recited in the lease, the minimum monthly rent will increase by a specified amount each month.
• Computation of Percentage Rent; The lease should show how percentage rent is computed, when payments will be due, and what will be included in gross sales for determining the percentage rental (e.g., vending machines and mail order sales). This clause should also specify how frequently the tenant will be required to submit sales reports to the landlord and that the tenant’s annual sales report must be prepared by a certified public accountant.
• Noncompetition Clause; In order to ensure noncompetition with your center, you should include a provision that prohibits the tenant from directly or indirectly engaging in a similar or competing business within a specified radius (expressed in miles) of your center.
• Costs of Common Areas; The tenant should be required to pay its proportionate share of the costs of operating the center’s common areas, including the following:
• Repairs
• Landscaping
• Security
• Cleanup
• Snow removal
• Parking lot sweeping
• Restriping parking spaces
• Garbage removal
• Light Bulb replacement
• Liability and property damage insurance
• Real estate taxes
• Depreciation on equipment and machinery
• Any other costs of operating, maintaining common areas.
• Employee Parking; As the landlord, you should reserve the right to control employee parking. You should also provide that you have the right to remove any unauthorized people from the parking areas, as well as from any common areas.
• Center’s Merchant’s Association; The lease should provide that the tenant must be a member of the center’s Merchant’s Association.
• Signs; As the landlord, you have the right to approve the size, placement, and contents of any and all signs within the center. Such a provision may prohibit paper signs, exposed neon signs, sandwich boards, etc.
• Property Tax Increases; The owner may specify that he will pay the real estate taxes on the leased premises and the underlying land for the first year after the center is open, but that any increases after that will be prorated and passed along to the tenants.
• Recapture Clause; Landlords should include recapture clauses in their leases so that they can cancel tenant’s leases if rental deficiencies are not paid.
• Permission for Assignment and Sublet; In order to somewhat control the situation, you should have the lease provide that a tenant may not sublet or assign its lease unless it first gets your written consent to do so, and the clause should state that a consent to a particular assignment or subletting will not apply to later assignments or sublettings.
• Insurance; The tenant should be obligated to have property loss and personal injury insurance, naming the landlord as an insured. The tenant should be required to insure any boiler on its premises. The tenant should also be required to have fire and extended coverage insurance on its merchandise and fixtures.
