February 10, 2019
The majority of national and regional tenant leases contain some sort of tenant-negotiated restriction. It may be an exclusive use, or a specific prohibited use in the center (no educational facilities), or a site line restriction, or a restriction against a type of use within x feet of the premises (no food uses within 200’ of the premises), and any of the other myriad restrictions that are important to tenants. Often times, if a restriction is violated, a remedy kicks in – tenant will pay the lesser of x% of sales or minimum rent, or 50% of minimum rent, or even no rent – until the condition is cured (and it may actually ultimately result in the right to terminate if the condition is not cured within x months).
This week, a novel remedy was included in one of the leases. If a violation is not cured within 90 days of notice to landlord of the violation, the tenant has the right to pay either 2% of Gross Sales, or “Minimum Rent … less the … rental paid by the tenants … using their premises for the Prohibited Use or Restricted Use for such period.. ”
“Minimum Rent … less the … rental paid by the tenants … using their premises for the Prohibited Use or Restricted Use for such period.. “
It really is a brilliant clause (for the tenant!). If a landlord allows a larger tenant to come in and violate the restricted or prohibited use, it is possible the tenant may not be required to pay any rent. If a smaller tenant comes in and violates it, they would see a proportionate reduction in rent.
While it may not be appropriate in every case, there really is no limit to leasing agents’ creativity.