The landlord’s best case scenario – Its standard lease
March 16, 2017
It doesn’t get better than the landlord’s standard lease. Seriously. The language in the standard lease is typically the best the landlord can possibly do because changes negotiated from its standard almost always favor the tenant.
A landlord doesn’t have a standard lease form and then have the ability to say 「We are going to add a clause that increases minimum rent by 10% when we add an anchor.」 A landlord doesn’t have the ability to say 「While the lease requires the payment of taxes based upon leasable area, but we are going to change it to leased.」 A landlord doesn’t have the ability to add management fees to the definition of operating expenses if it is not already in the standard lease form.
When the landlord presents its standard lease form, the tenant starts chipping away. There are no 「adds」 for the landlord. (One exception to this rule is that if the tenant does negotiate a change and the landlord has a firm concept of the value and meaning of that change, other language favoring the landlord can be added in response. For example, the tenant negotiates a change in the definition of excluded area from greater than 15,000 sf to greater than 40,000 sf. A landlord can then respond with the addition of 「Notwithstanding anything in the lease to the contrary, the premises currently operated as a Barnes & Noble shall be an excluded area for purposes of calculating tenant’s share of CAM and taxes.」)
What that means is that you as the landlord have to put your best (most aggressive) foot forward in the standard lease form. Have the standard lease describe a monetary default as 0 days without notice. Specifically include items like parking lot resurfacing, roof replacement, management fees, manager’s compensation and admin fees in CAM. Included relocation rights and radius restrictions. Don’t give operating expense audit rights as part of the standard lease. Have the definition of excluded areas include any tenant not paying a full prorata share. Include an increase to minimum rent for the addition of an anchor or a renovation where the landlord spends more than $5m.
Remember, the lease language can be negotiated down, not up.
(While we tend to look at the industry from a landlord’s perspective, this same issue applies to department stores, supermarkets, big boxes and other tenants using their own form leases rather than the landlords. It doesn’t get better for you than your own standard, so make it as tenant- friendly as you can.)