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Some owners offer a tenant the right of first refusal (ROFR) to buy a building, should they decide to sell the property. If you decide to do this, make sure that you don’t get burned by the current tenant’s lower offer than a third party. When negotiating a lease with a tenant you’re giving a ROFR to buy your building, make sure that the lease specifically says that the tenant can’t exercise that right unless it gives you a signed contract with terms that are identical to those contained in any offer you’ve gotten from a third party.
Medical office tenants may pose environmental and safety risks if they generate hazardous materials and medical waste. Contamination of space can be a nightmare for you, but you can ameliorate this by requiring the tenant to return the space in the same condition that it was in when the tenant first got it. While you should leave room for the typical “ordinary wear and tear” caveat, it’s crucial to say in the lease that the tenant must leave the space uncontaminated. If you don’t carefully negotiate this, you could be left paying for the cleanup effort.
Before retaining a real estate attorney for a new deal, don’t spend time and money disclosing the deal’s details to her before you are sure that no conflict of interest exists that could prevent her from fairly representing your interests. This applies whether the attorney is new to you or one with whom you have worked in the past. If you discover a conflict of interest after you have hired the attorney, you might have to change attorneys or law firms. Worse yet, you could get stuck with a bill for her legal services incurred up to the date that the conflict was discovered.
If your commercial property has more than one level, it will have at least one set of stairs. You may be wondering if you could include the stairs leading to, say, the dance studio in the square footage, and whether it’s customary, or even legal, to include stairs leading to a second-story office or retail property when calculating the square feet to be leased. What if the stairs are the only access to the leased area?
Gross sales clauses can be very lucrative for owners because they aren’t limited to collecting just base rent—the percentage of sales a tenant must hand over could potentially be more than its actual rent. But a problem crops up for you when other tenants use the named tenant’s space. You might not be able to collect a percentage of their sales—unless you’ve specified in the lease that you have the ability to do so.
So much retail business is done online that it’s common for tenants that are pulling in profits that way to use their brick-and-mortar spaces for purposes related to the business, but not to actually sell products. For example, a tenant with a successful website might turn its store into a service center, a display room, or merely a counter where customers can return or exchange online purchases. But if there isn’t merchandise for sale, it’s bad for your business; the service center won’t generate any percentage rent if the tenant doesn’t make any sales there.
If you grant a license to kiosks and carts to conduct business at your center, make sure that you audit the books and records of a set percentage of those kiosks and carts each year to verify their gross sales. It’s not uncommon for kiosks and carts to submit gross sales statements that underreport their gross sales. Assuming your kiosk or cart license agreement gives you the right to audit, auditing the kiosks or carts helps deter them from underreporting their gross sales—and underpaying their percentage rent.
One thing that owners don’t like to hear when negotiating a lease is that the tenant must have possession of the space by some important date, known as the “drop-dead date.” This is an issue because the tenant usually wants the owner to suffer stiff consequences if the drop-dead date isn’t met. Free rent, significant monetary penalties, and, sometimes, a termination option are some requests tenants make.
You can’t stop third parties from suing you if they’re injured after hours by someone in your building or center—but you can protect yourself financially in other ways. For example, make a tenant pay for the actions of its visitors, agents, employees, and subtenants. And make the tenant agree to be liable if any of its visitors (or its agents, employees, and subtenants cause harm to the building or center or to anyone inside the building or center. To do so, add this language to your lease:
Suppose your lease doesn’t give a “problem tenant” a renewal option, but the tenant wants to stay in its space. You might be tempted to allow it to stay if the tenant is important to the synergy at your center or serves some important purpose in your office building. This is your chance to have a frank talk with the tenant to work out any problems you’ve had with it under the old lease and agree to a renewal—but only if the tenant agrees to change its ways.
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