LEASE AGREEMENT REFERENCE GUIDE 620: STRATEGIES FOR SHOPPING CENTER PAD LEASES $24.95
Documenting The Pad Lease Rider For The Freestanding Shopping Center Tenant
Doing shopping center deals with mall tenants for in-line space is normal stuff for retail landlords. They argue about the merits of the tenant's proposed location in the center. If the center is still in the lease-up stage, they describe the other tenants going into the center, and extol their retail virtues. They argue with the tenant about whether the rent is too low. Finally, when the deal is struck, the landlord presents its standard lease form already blessed by the landlord's lender.
But if in-line mall deals are standard stuff, documenting a freestanding pad deal has always been a little vexing for the landlord. The landlord's form lease doesn't cover a lot of issues that make the freestanding location unique and desirable to the tenant. The tenant generally wants a freestanding store because it offers enhanced visibility and access, and the right to use his standard colors, signage and building design. He's not lost in the pack inside the mall. From the tenant's point of view, those benefits of the freestanding location must be carefully protected during the term of the lease. How can that best be done?
The landlord's standard shopping center lease form takes care of the components of the business deal (e.g., the minimum and percentage rent, common area charges, taxes, options to extend, etc.). It also covers most of the boiler plate commonly found in any shopping center lease for in-line tenants (e.g., promotional requirements, insurance, operating covenants, condemnation, casualty, etc.). What the landlord's standard form doesn't cover are the important issues for the tenant dealing with parking, visibility, utilities, access, signage and traffic. Many of these concerns focus upon control of the center's common areas
The Tenant's Pad Lease Form or the Rider?
Since the landlord's standard form doesn't get the job done by itself, the retail landlord needs to improvise. It can use its regular mall form with an extensive rider (like the one which follows below). If the tenant is national, it can use the tenant's freestanding lease form. The only problem is that the tenant's form will be so tenant-oriented that the negotiations will take forever if the parties use it as the starting point.
Another problem with using the tenant's lease form is that it is usually out of synch with the provisions in the landlord's lease that must be substantially consistent for all leases in the center (e.g., duties to restore for casualty, condemnation mechanics, insurance provisions, common area maintenance and tenant contributions, etc.). Without at least a minimum of such consistency, the landlord's lender just won't approve the deal, and the deal won't happen.
What to do? As far as the landlord is concerned, the tenant's form is too horrible to contemplate. But the landlord's lease form for mall tenants doesn't cover major parts of the deal (like utilities, parking, traffic, access, and signage). A common compromise is to negotiate a pro-tenant rider and attach it to the landlord's mall lease. This gives the landlord at least some consistency with the other leases in the center, and it covers the points important to the freestanding tenant.
Premises And Maintenance Issues
If the tenant's building pad is to be located in what was once parking area for the center, the landlord and the pad tenant will have to define the tenant's premises carefully in the documentation for the deal. Is the parking area needed for the tenant's business included in the definition of the premises? If so, that normally means the parking is for the tenant's exclusive use, and that the tenant will exercise almost total control over the area. In such cases, the tenant will generally maintain it and insure it. And the value of the parking area must somehow be factored into the business deal and the rent.
If the parties decide that the tenant's premises will consist of only the actual footprint of the tenant's freestanding building, then what are the tenant's rights to use the parking surrounding the building? Will the tenant have to pay an adjusted share of common area maintenance in relation to mall tenants because it is freestanding? Does the tenant have only a non-exclusive right (e.g., a license) to use the surrounding area? Or does it get a non-exclusive easement to use the parking area for parking for the tenant's employees and customers? Can other tenants in the center (or their employees or customers) park there, too? Will the parking area be maintained as common area by the landlord using common area maintenance contributions by the tenants in the center?
If the tenant's parking is maintained by the landlord, what will the landlord include in its calculations of total common area for the center? Certainly not the area occupied by the tenant's building, since that is pretty obviously under the tenant's exclusive control. But what about the parking area surrounding the tenant's building, or the area for the pad tenant's dumpsters, bank vaults, drive through windows, or special utility transformer or other gear? Is that really common area?