Plugging Loopholes

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Are you fully protected if your tenant moves out at the end of its lease and leaves the space in such terrible shape that it’s unrentable right away? Your lease probably requires the tenant to pay for any costs and repairs that may be necessary, but that may not be effective to cover all of your losses. For instance, if the space sits vacant while you take six months to repair it, you would wind up not collecting rent—but you would still have to pay...

Shutting down the electricity in a tenant’s space may become necessary at some point, either because of circumstances in the center or building, such as repairs or an upgrade to the electrical system, circumstances out of your control, such as an order from the utility company, or an emergency situation like flooding or a fire. But if your lease doesn’t carve out your right to electricity shutdowns, you could be on the hook for damage they cause to a tenant&...

When a tenant performs alterations in its space, there’s always the risk that they won’t be performed properly or that one or more mechanic’s liens will be filed against your property. Both of these issues can be costly and have long-lasting ramifications. Traditionally, many owners have tried to avoid those situations by requiring a tenant that plans to do construction to provide bonds before the work starts. But bonds can be a problem for both you an...

Sadly, public violence has escalated in the past few years, with attacks in workplaces, entertainment venues, and malls. Regardless of the security measures you take to prevent or deal with violent attacks occurring on your property, some things will always be out of your control. From time to time, you should check to make sure your insurance policies provide adequate coverage. That’s still not enough, however. You should require your tenants to always maintain a...

Standard commercial net leases require the tenants to pay a pro-rata share of property taxes on an office building or shopping center based on how much of the space each occupies. As a result, when improvements cause the property’s tax assessment to go up, the big tenants pay the lion’s share of the tax increase. As long as the big tenants actually benefit from the improvement—whether to their own space or the common areas—it’s reasonable a...

If a tenant moves out and leaves behind fixtures, furniture, and equipment (FF&E), you may decide to leave them in the space because they make it more attractive to prospective tenants. But that can lead to trouble once a new tenant moves in. The new tenant may think that it owns the FF&E and might try to remove or sell them. And your lease might not stop the tenant from doing this.

To plug this lease loophole, make sure your lease, like our Model Lease Cl...

It’s common for retail tenants to negotiate a kick-out right—that is, the right to terminate the lease in the first few years if its gross sales fall below or don’t reach a certain threshold. This right is especially important for tenants that are considering expanding into a new location. That’s because a kick-out right allows the tenant to close its store quickly—and cheaply—if the location isn’t profitable or other factors ma...

You may have to give in if a strong tenant demands the lease right to assign or sublet to its affiliate—that is, a company the tenant controls or that controls the tenant—without your consent. The tenant probably will argue that an assignment or a sublet to its affiliate is no big deal. It’s just a change in form, not substance, because they’re related companies.

Some tenants that turn out not to be able to afford the rent for their space are upfront with their owners and try to deal with the situation the best way they can. Unfortunately, you may someday be faced with a tenant that must move out of its space before the end of its lease, but tries to get out of its obligations by relying on a technicality in its lease that doesn’t actually apply to the tenant’s situation. Even if the tenant is completely wrong, you c...

It’s typical for commercial leases to allow tenants to prorate rent if certain events, such as destruction of the tenant’s space, occur. But when you agreed to rent proration, you probably didn’t intend to let a bankrupt tenant that decides to reject its lease prorate its last month of rent. Rather, you probably expected that the bankrupt tenant would pay its rent for the month in full if that rent became due before it rejected the lease.