Plugging Loopholes

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Tenants who have a high electricity consumption can pose problems that you might not have considered when negotiating your leases. And a tenant that uses a typical amount of electricity now could need more later, or sublet or assign its lease to a high-power tenant. So, the message should be in neon lights for you: It’s crucial to negotiate and draft your lease provisions to protect against a tenant’s high power consumption.

Continuing advances in technology have made it easier than ever for commercial real estate owners to have the most effective security equipment for their properties. But upgrading and increasing security measures is expensive. And although the right security plan can save you money from vandalism, theft, or liability for accidents or crimes, it also has the potential to blow your budget. You can pass through to tenants the costs of increased security measures, though. H...

Performing due diligence on a prospective tenant is one way to try to determine whether the tenant is financially viable. But what if you end up leasing to a tenant that proves to be a risk, no matter how careful you thought you were when researching it? One example of a risky tenant is one that’s merely a “shell” company—that is, a company that serves as a vehicle for business transactions without itself having any significant assets or operations.

A strong tenant forces you to give it a self-help right—that’s the right to step into your shoes to do important repair, maintenance, or replacement work if you fail to do that work. But suppose you have warranties on your roof and other items that restrict who can perform repair, maintenance, or replacement work and which materials can be used. Should the lease bar the tenant from doing self-help repair, maintenance, or replacement work on any item that&rsq...

When a lease ends, you’ll want the tenant to completely remove any interior and exterior signage it has at its space. But that doesn’t always happen. Sometimes the tenant fails to remove some or all of its signage, leaving the job for you. Other times, it removes the signage but leaves behind a mess—such as dangling electrical wires—that’s not only dangerous but unsightly.

The exclusive right to sell a product or provide a service at a shopping center is invaluable to a tenant. The tenant won’t have any direct competition for profits, which sometimes means that it can set prices that would otherwise have to be lower to lure customers away from other businesses. But exclusives can be tricky when it comes to this type of price setting.

If you’re unsure that a prospective tenant will be able to pay its rent, getting a guaranty can assuage your fears and protect you from not being able to collect what the tenant owes. While a tenant might be able to produce a third party who’s willing to act as a guarantor on the tenant’s promise to pay—that is, the guarantor will step in and perform the lease obligations of the tenant if the tenant fails to do so—that strategy works only i...

You might think that if you sue a tenant that has stopped paying rent and abandoned or been evicted from its space, it’s only fair that the tenant pays you what it owes in damages. If you’re surprised to find out that some tenants end up paying only a fraction or even none of the damages the owner requests, you’ve probably failed to include language in your lease that ensures you’ll be able to collect what you need to make up for the default.

Many retail space owners, and especially mall owners, give themselves a relocation right. That is, the right to relocate the tenant to a different space in the center or mall under certain circumstances. Negotiating a relocation right can be tricky—if you don’t draft this provision correctly you could end up thwarting your own efforts to have some flexibility. Using vague terms is the quickest way to negate your intent for the provisions.

Many people don’t know that retailers—namely drug stores, grocery stores, discount department stores, home improvement stores, music stores, and book stores—have special deals with manufacturers, vendors, or suppliers to promote certain products. And that might not mean much to you as a shopping center or mall owner—but it should, since it’s a missed opportunity to collect percentage rent on those fees.