Plugging Loopholes

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In today's market, more tenants are leaving their leases early if their businesses are in trouble. Consequently, owners that are left in the lurch with broken lease agreements and a sudden loss of rental income must be prepared to quickly turn over tenants to fill vacant space. Creating “universal space,” which is all purpose and, therefore, easier to re-rent immediately, is a solution that saves time and money.

When a commercial tenant stays in its space after its lease term expires, it becomes a “holdover” tenant. The most common reason for a holdover is the tenant's inability to move because its new space isn't ready yet. As a result of a tenant's mismanaging its relocation, a lengthy holdover situation can become a very complicated and costly trap for the owner. Avoid this trap by discouraging tenants from holding over: Include a costly and inconveni...

With the summer approaching fast, power outages can be a daily occurrence. If the power in your area is shut off, tenants with an axe to grind might try to sue you for any resulting damage to its equipment and business. Or the tenant could argue that it has been “constructively evicted—that is, the power outage in its space was tantamount to an eviction by you—and try to terminate the lease or demand a rent abatement, says Sacramento attorney Thomas F....

By Benjamin F. Kursman, Esq.

Given the precarious credit situation of many tenants today, it is more important than ever that a tenant's security deposit be as secure as possible and immunized from the consequences of a tenant bankruptcy. There are several techniques owners can use to accomplish this, but a novel method—using the security deposit to secure the guaranty of the lease—reduces many risks and administrative burdens.

Bounced rent checks are a major hassle. Your bank will charge you a fee for a bounced check, and then you will have to spend more time actually collecting the rent from the tenant. Also, by the time you redeposit the bounced check or get a new one from the tenant, the rent is way overdue.

Standard lease remedies often are no help, and it may not be in your best interests to use harsher remedies like terminating the lease and evicting a tenant. And collecting damag...

Franchisor tenants in today's market are demanding that their leases give them ample freedom to sublet or assign to any franchisee they choose without your prior consent. Franchisors make this demand because they don't want you putting any limitations on which franchisees they can do business with.

Time was, commercial property owners weren't terribly concerned about which bank issued the letter of credit securing its tenant's obligations under a lease. Banks were assumed to be solvent and well capitalized.

Many tenants these days demand a tenant improvement allowance (TIA) that is substantially bigger than what you want to give. For example, you may want to give the tenant a $30-per-square-foot TIA, but the tenant demands $45 per square foot. If the tenant has good credit, you may give in and loan it the extra amount ($15 per square foot in our example) as an additional TIA. To ensure repayment, you would amortize the additional TIA amount (with interest) in the tenant...

You might agree to give your retail tenant a rent concession—such as below-market minimum rent—to persuade it to sign your lease. And in return for the concession, you would expect the tenant to pay you a lot of percentage rent if its business takes off.

If you and a tenant wind up in court, it's usually to the tenant's advantage to have a jury—not a judge—decide the dispute. That's because juries are typically biased against the owner. Therefore, if your lease is like most, you've included a protective clause that requires the tenant to waive its right to a jury trial.