The National Ski & Snowboard Retailers Association recently published this article by Jamie Moorhead. For more information, please see the NSSRA website here.
Negotiating a Retail Lease Soon? Here Are Some Tenant-Friendly Strategies
Even though the national leasing market has improved in the last few years, proactive thinking remains the winning strategy in lease negotations. Listed below are basic descriptions of a handful of tenant-favorable lease provisions that may be useful when negotiating a lease this year:
Alternate Term Length: A tenant concerned about a long-term commitment for a new business or in a new market may desire a shorter initial term with more renewal terms. The tenant that once agreed to a 10-year initial term and two five-year renewals now may want an initial three-year term and five three-year renewals. With a structure like this, you can get out of the lease if the business does not support the space, but also has reserved rights if the business does well.
Termination, Contraction, and Expansion Rights: If business is slow, reducing the space or exercising an early termination right (both often with a landlord fee) might be a cost-effective way to reduce the lease obligation. Alternately, if business is better than expected, a right to expand into adjacent vacant space may be useful for a tenant who initially leased a smaller space due to economic uncertainty.
Permitted Uses, Assignment, and Subleasing: Having sublease or assignment provisions with minimal landlord conditions is ideal in case you want to unload an underperforming site quickly. The permitted use clause also should be as broad as possible because it will maximize the audience of prospective subtenants and assignees that may be able to take the space.
Delayed Delivery of Space: It normally is critical for a tenant to have new premises delivered by a landlord on time so that the tenant can open for business as scheduled and begin to generate revenue as budgeted. To this end, consider providing in the leasethat, in the event the premises are delivered late, then tenant receives a rent credit for each day of delay (this credit is in addition to pushing back the rent commencement date), and a right to terminate if the delay is beyond 90 days.
Retail Co-Tenancy: For retail tenants, a co-tenancy provision allows a tenant to pay reduced rent when certain conditions are not met. Usually, the condition is that certain other stores, such as anchors, or a certain percentage of stores in the center, have to be open for business. The reasoning is that a tenant is spending a lot of money for a particular site and center, and if that center is not operating as it should due to the economy or other reasons, then tenant should receive a remedy.
These are just basic descriptions, and much will depend on the nature of your particular transaction. However, lease provisions like these may provide flexibility and peace of mind and will help keep your focus on the most important goal: the success of your business.
For more information, please contact James P. Moorhead, Esq., Moorhead Law Group, LLC, 321 North Clark Street, Fifth Floor, Chicago, IL 60654. firstname.lastname@example.org.