Plugging Loopholes

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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 Clause: Get Control Over Abandoned Fixtures, Furniture, and Equipment, spells out who controls those items.

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 make the location or market in that area undesirable.

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 could end up wasting time and money in court finding that out.

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.

If you haven’t negotiated a favorable holdover clause in your lease with a tenant, you may end up getting stuck with low rent and high costs if it won’t move out of the space when its lease term is over. That’s because to get rid of a tenant that doesn’t move out when its lease ends, you may have to start an expensive, time-consuming eviction proceeding. And the trouble doesn’t stop there: If you’ve already re-rented the space, the new tenant may sue you for damages because it can’t move in.

In the excitement and administrative hustle and bustle of redeveloping their centers, some owners discover they’ve overlooked one very important aspect of the redevelopment—namely, making sure that the overall look of the updated center isn’t interfered with by tenants. To require your tenants to conform their signage to your redeveloped center’s new signage criteria, your leases should take into account the potential for center redevelopment.

Responsibility for mold-related damage in commercial and residential properties has become a hot-button issue in the past decade, as major storms like Hurricane Sandy have increased the potential for flooding and subsequent mold growth, and as tenants have become more aware of environmental issues. Things like indoor air quality (IAQ) that previously weren’t on tenants’ radar may play a role in whether they choose a certain space over another. After all, tenants don’t want to risk their employees’ or customers’ health by working in hazardous conditions.

Competing with other nearby centers to draw in customers can be tough. You’re in a much better position if you have high-profile tenants that make your center a destination for customers looking for these particular stores. But no matter what type of center you own, you’ll want to let potential customers know which stores are at your property.

An owner is typically responsible for maintaining the common areas of its building or center, so if someone is injured in these areas, the owner is the party that will most likely have to pay for damages from an accident. If the accident was caused by a condition stemming from the actions of your property manager or its employees or some other condition that could have been controlled, this might seem fair to you.