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Lease Strategies

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This LARG contains the following items:

The Retail Eclipse and the No Drive Through Bank, and the Lease Clause Critique: 11 Pro-Tenant Strategies To Control Retail Common Areas.

Number of Single Spaced Pages: 12



The Battle To Control Retail Common Areas

Retailers with good leverage have always tried to negotiate clauses in their leases to expand their control of common areas in the shopping center adjacent to their premises. Why? Because if the lease is long enough, that control will ultimately protect key aspects of the tenant's business operation during the term. Such tenant control may even put cash in the tenant's pocket, especially if the landlord or another tenant needs the tenant's approval for some feature of a new deal requiring the tenant's consent.

Such scenarios often arise when a landlord tries to add new pads to an existing shopping center and a substantial in-line tenant has provisions in its lease prohibiting modifications to the common area without the tenant's consent. Or, provisions which prohibit the construction of improvements which affect the tenant's visibility. As far as the in-line tenant is concerned, no good can come from anything that reduces its visibility to the street in front of the center. Visibility is the sunshine which grows retail sales. An eclipse is not what the retailer needs.

Likewise, retail pad tenants are extremely jealous of traffic patterns which facilitate the operation of their drive through lanes. McDonalds is said to make about 60% of its sales in any particular unit from the drive up window, and anything which jeopardizes that is out of the question. Some fast fooders are even tearing down existing restaurants without drive throughs, and rebuilding smaller stores in their place—with drive throughs. The same thing applies to banks. Financial institutions simply must have drive through lanes, maybe 3 or 4 of them, to give acceptable retail service to the public.

There are several effective pro-tenant provisions which enhance the tenant's control over the common areas around him. Just how successful the tenant will be at negotiating them into the lease depends upon the tenant's business leverage—but it also depends upon the particular type of provision the tenant chooses, and the scope of its operation. A smart tenant can negotiate some meaningful common area protections if it picks its battles wisely, and if it knows when to compromise.

11 Pro-Tenant Strategies To Control

Retail Common Areas

This LARG looks at eleven separate pro-tenant strategies to expand its control of common areas adjacent to the tenant's premises. While some purport to affect the entire shopping center area, others pertain only to areas specifically identified in exhibits attached to the lease. Obviously, the provisions can be modified to affect whatever portions of the common areas that may be acceptable to the parties.

Of course, retail landlords are not in the habit of giving garden variety shop tenants appreciable control over common areas. Landlords regard such control as a key element in their ownership rights of the retail center. Even so, major tenants, and to a lesser extent, pad tenants, can negotiate some degree of control over the common areas adjacent to their premises.

Strategy #1: Loading the Lease's Site Plan With Pro-Tenant Detail

Almost all retail leases contain a site plan showing the premises and, sometimes, the balance of the shopping center. The amount of detail contained in a site plan can range from next to nothing to extensive detail concerning the identity and location of various tenants, uses, utility details, access and traffic circulation data, and the like.

Retail tenants with good leverage will likely raise a number of the following issues during site plan negotiations:

  • Does the proposed site plan specify the identity of the major retail tenants for the center, especially if the retail complex is not complete at the signing of the lease?
  • If the tenant is taking space in an expansion of an existing center, are the other expansion tenants specifically identified by the landlord with their square footages and opening dates?
  • Are there adjacent parcels owned by the landlord or its affiliates reserved for future development which should be included in the site plan?
  • If the landlord will not agree to certain site plan restrictions proposed by the tenant for the entire complex, can the tenant negotiate such provisions for the portion of the complex closest to its premises?
  • Does the site plan specify designated building areas, building height restrictions and maximum square footage amounts for adjacent buildings and out parcels?
  • Does the site plan contain use restrictions for the common areas (e.g., no retail selling except for sidewalk areas)?
  • Does the site plan show utility details for the premises, including capacity, costs, connection rights, tap fees, facility charges, and use fees?
  • Are all electrical, sewer, telephone trunk, and water lines shown on the plan?
  • Does the plan show or refer to on-site and off-site storm drainage facilities (e.g., retention ponds)?
  • Is it desirable to obtain non-exclusive easements for pedestrian and vehicular access to the parking areas and the rest of the center, and recordable easements for utilities that serve the premises?
  • Can the tenant negotiate rights to approve any changes to the parking layout and traffic patterns for the area adjacent to the premises?
  • Does the plan contain a required minimum number of parking spaces, or ratios of parking spaces to building area?
  • Does the plan show the dimensions of the parking spaces?
  • Does the site plan clearly show the exclusive locations of signage not mounted on buildings, especially pylon signs to be shared by the major tenants?
  • Does the site plan show parking striping, parking lighting, entrances and exits, driveways, and drive throughs, especially in the area adjacent to the premises?
  • Does the plan show the permitted uses for adjacent pad tenants? Do such permitted uses include parking intensive uses like restaurants and theaters?
  • Are the details shown on the plan regarding proposed traffic circulation patterns for the center acceptable to the tenant?

Of course, it does the tenant little good to negotiate lots of detail into the site plan if the same site plan contains language to the effect that the landlord may make changes to the plan as the landlord sees fit. The following clause provides that the site plan details are a material inducement to the tenant to do the deal.


End of Excerpt