Limit Noise Rights to Protect Right of Quiet Enjoyment for Center Tenants
In every commercial real estate lease a tenant has the right to quiet enjoyment of the space it rents. While all of your shopping center tenants are entitled to enjoy the use of their space, some may own businesses that generate noise, play loud music, or attract customer lines or crowds that could interfere with the rights of other tenants that thrive on providing a quiet atmosphere for their own customers. For example, a gym or a restaurant with outdoor seating in a retail center has the potential to disturb quieter tenants like small boutiques, yoga studios, or bookstores.
In this economy, it is hard for many owners to turn away new tenants, even if their businesses have the potential to create unwanted noise. If you are considering renting to a tenant with a high risk of creating noise disturbances, you don't have to limit yourself. Exercise your right to negotiate noise rights in the tenant's lease and limit its operations in a way that will provide a beneficial atmosphere for all of the tenants in your center.
Make Noise Determinations in Your Sole Discretion
It is critical for an owner that is negotiating a lease with a loud tenant that wants to rent space in a center with quiet businesses to address noise disturbance issues. “Because leases are contracts, there is no reason why you can't negotiate noise rights,” says Kenneth Klassman, a Chicago real estate attorney with Horwood Marcus and Berk Chartered. Klassman has negotiated noise issues with gyms and restaurants that want to play music in their outdoor space. “Noise issues can be very difficult to negotiate because owners and tenants will have a difference of opinion as to what constitutes loud noise,” he warns.
Most leases have a specific right to quiet enjoyment clause, like the one in our Model Lease Clause: Limit Tenant's Right to Quiet Enjoyment [Clause, par. 1]. But including language in the lease that defines who has the discretion to determine what type or volume of noise is “loud” is one way to limit the scope of your tenant's right so that you can resolve noise issues. You can stay in control of the atmosphere at your center by negotiating the right to determine in your “sole” discretion whether a tenant is being loud or not [Clause, par. 3].
Preempt Noise Disturbances
When dealing with a typically noisy tenant, location is key, says Klassman. Try to negotiate with the tenant as to the location of the space it will rent in your center, if there is more than one space available that suits its needs. Situating the tenant away from quiet businesses, or putting it in a ground floor space in a multi-level center will eliminate getting complaints from tenants both above and below it.
Soundproofing space can be effective, but costly. Klassman recommends agreeing in your lease to put in soundproofing walls at a later date in the event that there are more than a specified number of complaints per year for excess noise coming from the space. That way, you don't have to spend money initially to solve a problem you may not ultimately have. This also will calm the tenant's fears that it won't be able to run its business effectively due to noise issues.
Klassman says that when he is advising clients, the hardest thing is to convey to the owner and tenant that, unlike a purchase and sale agreement, a lease doesn't go away.
Draft Clause for Compliance with Nuisance Laws
Designating the hours of operation for a tenant's business is an effective way of curbing noise. You can also prohibit tenants from playing loud music or making other noise during an agreed-upon time frame within those operating hours. For example, if a restaurant in your center opens at 5 p.m., you may want to prohibit it from playing music until 7 p.m., or after quieter tenants' operating hours are over.
Additionally, most municipalities have noise restrictions. Klassman recommends including language in your lease making a loud tenant's operation subject to any applicable federal or local laws, restrictions, or ordinances [Clause, par. 4(d)]. Not only can you point out to the tenant the noise ordinances that it is violating if there is a disturbance, but you also can tell the tenant that it is in default if you've included that provision in the lease.
You should also include in your lease a neighbor covenant that deals with crowd control issues—such as long customer lines at a tenant's business—using provisions that obligate the tenant to respect the quiet enjoyment that you are required to give to the other tenants at your center [Clause, pars. 4(a), (b)]. Adding a non-nuisance covenant providing that in your reasonable judgment the tenant cannot disturb any other center tenants is also effective [Clause, par. 2(c)].
PRACTICAL POINTER: Make sure that you draft a clause separate from the right to quiet enjoyment provisions making the tenant waive its right to quiet enjoyment specifically for your right of entry to its space [Clause, par. 2].
Give Right to Notice and Cure
Give your tenant the right to notice of its noise violations and a set period in which to “cure—that is, comply with the noise provisions in its lease. Specify that if the tenant causes the same type of noise disturbance more than a certain number of times, it will be in default without the right to cure it [Clause, par. 3].
You have the choice to require that, to avoid default, the tenant does not commit the same exact noise disturbance more than a set number of allowable times, or does not commit any breach of the noise restrictions more than a set number of allowable times.
“As the owner, you want these provisions to be as broad as possible, but I think it's fair to say that the tenant has to commit the same offense a certain number of times before it loses its right to notice and cure,” says Klassman.
Keep in mind that you can modify noise provisions in the lease depending upon what kind of tenant you are renting to. “You may want to draw a harder line for local tenants than for a national tenant,” says Klassman. “Owners are trying to stabilize their centers, so they are looking at tenants that they wouldn't have considered three years ago. But a national tenant will probably win out over a local tenant, unless it has a strong personal guarantee, a great track record, and good financials,” he adds.
Insider Source
Kenneth Klassman, Esq.: Horwood Marcus and Berk Chartered, 180 N. LaSalle St., Ste. 3700, Chicago, IL 60601; (312) 606-3232; kklassman@hmblaw.com.