As mentioned above, there are a few terms and clauses that every tenant needs to understand before entering into a lease.
First, a relocation right is an option given to the landlord to move the tenant’s business to another space in the shopping center if certain conditions are met. While this may not seem so bad, it can be devastating to some. Take, for example, a tenant whose business is located in a space that fronts a busy boulevard. The ability to be seen and recognized is a premium element in commercial leasing, and a relocation right can take that benefit away from you in the blink of an eye. The following paragraph is an example of a typical relocation clause.
If for any reason, in Landlord’s sole discretion, Landlord notifies Tenant in writing that Landlord wishes to relocate Tenant from the Premises to other space within the Shopping Center, Tenant shall, within [thirty (30)] days after receipt of Landlord’s notice, vacate the Premises and relocate all of Tenant’s trade fixtures, equipment, and inventory to the new premises designated by Landlord. Tenant’s reasonable and necessary expenses for moving such trade fixtures, equipment, and inventory shall be reimbursed by Landlord within thirty (30) days of Landlord’s receipt of invoices for such moving expenses. Landlord shall pay for the completion of interior improvements in the new premises substantially similar to those paid for by Landlord pursuant to this Lease in the Premises. All other costs of remodeling, outfitting, and furnishing the new premises shall be borne by Tenant. Tenant shall arrange for the transfer of all utilities to the new Premises. Tenant shall execute and deliver such further documentation as Landlord may prepare to memorialize the same.
As you can see, in order to effectuate the clause above, the landlord must pay for most reasonable and actual costs associated with the move. However, here the tenant will bear the cost for remodeling the new space. This is a perfect example of a standard lease leaning in the landlord’s favor and how a hidden term can have a serious effect on the tenant.
Second, a “tenant exclusive” clause is a lease provision that limits the use of a tenant’s business. For example, if you plan to operate a gym in the premises, you may not be allowed to sell protein shakes or smoothies—or at the very least somewhat limited in doing so. The reason for this prevention is because another tenant in the shopping center—maybe a smoothie shop—negotiated such a clause in its lease in order to limit competition. Having said that, you may, and probably should, negotiate a tenant exclusive clause to protect your business.
Third, there are often additional fees tucked into inconspicuous areas of the lease. Such charges often show up on a tenant’s monthly statement and leave an undiscerning business owner paying fees he or she should have immediately cut from the lease.
These charges include “management fees” and also “administrative fees.” Such charges can typically be found in the additional rent or common area expenses sections.
A tenant should be very weary of these charges for two main reasons.
- First, many leases that contain management and administrative fees define them as broadly as possible. This ambiguous technique is used so that the landlord may include a wide variety of charges.
- Second, in many cases there is no third-party payment, such as for a waste management company. This allows the landlord to put whatever he or she wants into these fees.
However, the charges are often necessary to keep the shopping center at a certain standard set forth in the lease. Additionally, keep in mind most landlord-tenant laws require good faith negotiation by the landlord. So while a careful eye should be kept on the landlord’s ability to charge these types of fees, often the lease will stipulate that a tenant can review the details of such charges and even order a professional audit.
In short, after you thoroughly read your commercial lease agreement, you will almost surely walk away scratching your head at some of the terms and meanings—and that is okay. Not all of us are attorneys used to interpreting the language of “legalese” that makes up the majority of the lease document.
Therefore, in cases in which you do not understand the meaning of a particular word, sentence, or phrase, it is okay to ask the landlord, broker, or attorney about it. Other than the fact that most landlord-tenant laws ban a landlord from concealing material details of a lease, many landlords will be more than happy to answer your question within reason, as they want to speed up the process and move on to leasing the next vacant space, not wait for you to figure out everything on your own.