Dos & Don'ts

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Recent natural disasters and extreme weather have forced some tenants out of business or have forced them to relocate after their space has been damaged. And many shopping centers have felt the effects of a tenant shakeup. Aside from dealing with the financial aftermath, you should also take a good look at the new makeup of your center.

Depending on whether your property manager is a third party or works directly for you, it will probably check in differently. Because it’s providing financial information to you, a third-party property manager is obligated to report to you at least monthly regarding financial issues and any other predetermined topics. A property manager that works directly for you might have a tendency to check in more often. But both types of property managers should be instructed to check in with you more often about specific issues where time is of the essence.

To maximize your property’s value and profit, limiting premises liability should be a priority for you—and you should communicate this to your property manager, who’s most likely to hear about and react to injuries before you do. To make sure your property manager understands the importance of preventing personal injuries and reacting to them appropriately when they do occur, make sure your property manager:

Despite protecting yourself from costly litigation by using an indemnification clause in your leases with tenants and reducing your exposure to personal injury lawsuits by properly maintaining your center or building, you may still be on the hook for an accident, unless you’re immune from liability. Having insurance that will cover the related costs helps soften the blow.

If you defaulted on the mortgage loan for your office building or center because a major tenant didn’t pay its rent, leaving you short of money to make a loan payment, it seems only fair that the delinquent tenant should have to reimburse you for the loan-related damages you had to pay to the lender. But if your lease doesn’t allow you to recover loan-related damages from a delinquent tenant, you’ll miss the chance for reimbursement.

It’s preferable to not give a tenant a “performance kickout right”—that is, a right to terminate the lease if its gross sales during a certain period fall below or don’t reach a certain dollar amount. That’s because terminated leases don’t generate rental income and may reduce the value of your center as far as lenders are concerned. Also, you may wind up with dark space for a while if you can’t find a tenant.

Letting a business use a portion of your outdoor parking lot can be an innovative way to earn additional revenue and boost traffic at your center. While business-related activities, such as book sales, car sales, and boat sales seem to be a relatively quick and easy way to bring in more cash and positive publicity for you and your tenants, they can get out of hand and jeopardize the center if you don’t control them in a way that’s conducive to your regular operation—the one that tenants have carefully negotiated for.

Before you rent space to a labor union tenant, make sure that you’re willing to agree to lease requirements that are unique to that type of tenant. Here are examples of what to expect during lease negotiations:

If a prospective tenant asks to rent space in your center beginning on a day past the first of the month, you should prorate the rent for the remainder of the month. Spell this out in the lease carefully. Otherwise, you and the tenant could end up in a dispute over which calculation method to use. That’s because there are several methods to calculate prorated rent, and each one gives a different result. It’s important to carve out the right to use the method you want, since the method you choose will affect how much rent the tenant pays you.

Under certain circumstances, you could get stuck with a big bill for a brokerage commission or transfer taxes if your tenant assigns its lease or sublets its space. For example, you may have a listing agreement with a broker that entitles it to a commission for any transaction involving your building or center. Or a tenant may fail to pay real estate transfer taxes due on an assignment and leaves you with the problem of getting rid of the resulting lien on your building or center. Paying brokerage commissions and real estate transfer taxes could get very expensive.