Elizabeth A. Napoli, SCSM, SCMD
Management Concepts & Motivations
MC & M, Ltd.
Pomona, New York
THE LEASE AND ITS
ADMINISTRATION
http://www.mcandm.com
WHAT TO DO BEFORE THE LEASE IS SIGNED
• Create a positive relationship with your
Leasing Representative.
• Local Managers should create a list of upto-date Additional Rent Charges and
distribute to all internal parties to ensure
that they are being quoted correctly.
• Ensure your Leasing Representative is
aware of your concerns related to sitespecific or corporate operational issues.
WHAT TO DO BEFORE THE LEASE IS SIGNED
• Ownership/Managing Agents should:
– consider having the Property Manager
and/or Corporate Director of Property
Management review lease drafts or
specific provisions concurrently with the
Leasing Representative prior to lease
execution.
• Tenants should:
– consider internal department reviews of
lease drafts prior to lease execution.
HOW TO ADD VALUE TO THE LEASE
• Protect the content and quality of the key
lease clauses that enhance the income
• Fully understand the consequences of
negotiations
• Make sure language is:
 Enforceable
 Details remedies
 Crystal Clear
DON’T ALLOW KEY CLAUSES TO BE
• Watered down
• Eliminated
• Omitted by oversight
– Leasing Representative
– Legal Team
MANAGEMENT’S ROLE
• Management must consider the
needs of:
 The Shopper
 The Tenant
 The Owner
MANAGEMENT’S ROLE
• To make the property look good
• Administration of Financial Terms of the
Lease
• Enforcement of Clauses to ensure the
integrity of the property
• Keep Tenants “Happy”
LEGAL COUNSEL’S ROLE
Legal
• Standard Lease Agreements or Conformed
Leases
• Legal Representatives Role is to
– protect their client
– be reasonable to get the deal done
• Legal Representatives and Business People
(i.e. Leasing Representatives) must work
together to finalize deals
WHAT’S IMPORTANT IN THE LEASE AND WHY
• Base or Minimum Rent:
– Expressed on an annualized per square foot
basis (in the United States)
• Per square foot basis allocation used for
other charges including:
– RET, CAM, Mall HVAC, etc.
PERCENTAGE RENT - EXHIBIT A
The term “Gross Sales” shall mean the total amount in
dollars of the actual sales price, whether for cash, on
credit or both, of all sales of merchandise and services
and all other receipts of business conducted in or from
the Demised Premises, including all mail or telephone
orders received or filled at the Demised Premises, all
deposits not refunded to purchases, orders taken,
although said orders may be filled elsewhere, and sales
by any sub-lessee, concessionaire or licensee or
otherwise in said Demised Premises. No deduction shall
be allowed for uncollected or uncollectible credit
accounts. Gross Sales shall not include: sales or excise
tax, nor the exchange of merchandise or ???? (Internet?)
PERCENTAGE RENT CALCULATION
Percentage Rent = Overage Rent
Annual Rent
Percentage Rent Factor
Gross Sales – Breakpoint
=
Breakpoint
Applicable Sales
=
to Percentage Rent
Applicable Sales x Percentage Rent Factor
=
Percentage
Rent
PERCENTAGE RENT CALCULATION
Percentage Rent Example:
Annual Rent
=
$100,000
Annual Sales
=
$1,200,000
Percentage Rent Rate
=
10%
$100,000 / 10% =
$1,000,000
$1,200,000 - $1,000,000 =
$200,000
$200,000 x 10% =
$20,000
in Percentage Rent
EFFECTIVE RENT CALCULATION
Effective Rent = Minimum Rent + Percentage Rent
• Example
Minimum Rent = $100,000
Percentage Rent = $20,000
Effective Rent = $120,000
WHAT’S IMPORTANT IN THE LEASE AND WHY
• Dates:
– Effective Date: Mutually agreed upon
date when Lease takes effect
– Turnover Date: When Tenant takes
possession and begins construction
– Rent Commencement Date: When
Rent Begins
– Lease Termination Date: When Lease
ends
WHAT’S IMPORTANT IN THE LEASE AND WHY
RECOMMENDATION
• Include language in the Lease that
all dates must be confirmed in
writing at or near completion of
construction
CAM EXHIBIT B
Common Area Charge: “Common Area Charge” means
the Landlord’s gross actual costs and expenses of every
kind or nature incurred by or imposed upon Landlord, in
or by reason of Landlord’s ownership, operation,
management, maintenance and/or replacement of the
Common Areas, the cost of operating, repairing,
heating, lighting, air-conditioning, cleaning, painting,
removing snow, ice, leaves and debris, providing offsite parking, providing security, sewage and trash
disposal charges, insurance for hazard and other risks
and any other insurance Landlord deems necessary,
licensing fees, a reasonable allowance for the
depreciation of, or for the rental of, vehicles and
maintenance equipment, direct and payroll overhead
and payroll taxes and benefits.
(Controllable or not?)
CAM RECOVERY CONSIDERATIONS
• CAM = Common Area Maintenance
• CAM Recovery Calculation
Pro-Rata basis = Leasable
Proportionate Share Basis = Leased
Understand the importance of these terms
CAM EXHIBIT C
Tenant’s proportionate share of the Common Area
Charge, which shall be computed on the ratio which the
floor area of the Demised Premises bears to the total
floor area of the Shopping Center which is leased,
occupied and producing Rent, including the Demised
Premises, but excluding floor area Landlord designates
as Anchor Tenant and/or Specialty Store Tenant space
and space of Recreational and Convenience Uses;
provided, however, Tenant’s share of the Common Area
Charge shall be calculated on the basis of not less than
eighty percent (80%) of the gross leasable area of the
Shopping Center (excluding Anchor Tenant space,
Specialty Store Tenant space, and space for Recreational
and Convenience Uses).
WHAT’S IMPORTANT IN THE LEASE AND WHY
• Taxes
– Proportionate Share or Pro-rata?
– Controllable or Uncontrollable?
• Insurance
–
–
–
–
–
General Liability ($1M-$3M)
Indemnification Clause
Additional Insureds
Demised Premises
Controllable or Uncontrollable?
TAXES - EXHIBIT D
Tenant’s share of Taxes shall be computed on the ratio
which the floor area of the Demised Premises bears to
the total floor area of the Shopping Center which is
leased, occupied and producing Rent including the
Demised Premises but excluding floor area Landlord
designates as Anchor Tenant space and/or Specialty
Store Tenant space, and floor area used for post office,
child care nursery purposed, or other principally for
service, convenience or recreation to customers of the
Shopping Center provided, however, Tenant’s share of
Taxes shall be calculated on the basis of not less than
eighty percent (80%) of the gross leasable area of the
Shopping Center (excluding Anchor Tenant space,
Specialty Store Tenant space, and space (as noted
above).
WHAT’S IMPORTANT IN THE LEASE AND WHY
• Use Clause
Controls tenant mix for both the Landlord and
the Tenant
• Exclusives
– Precise as to type, style or manner of business
– Carefully consider the effect on the future of the
center
– Use very sparingly for highly coveted tenants only
• Radius Restrictions
– Ensure a penalty for violations is included in Lease
(i.e. LL gets % of sales from competing store within
radius and/or LL’s right to Lease Termination.)
WHAT’S IMPORTANT IN THE LEASE AND WHY
• Co-Tenancy
– Huge issue in current retail climate…WHY?
– Tenant’s Obligations are contingent upon the
presence of specific other tenants
– Continued Operation of Anchor Tenants or specific
retail units by name, by minimum square footage or
by percentage of GLA
– Typical Remedy:
• Reduced Rent OR
• Conversion to Percentage Rent in lieu of Minimum Rent
WHAT’S IMPORTANT IN THE LEASE AND WHY
• Default
Applies if either LL or Tenant fails to fulfill
Lease requirements
• Hours
Continuous Operation
• Include monetary penalty if Tenant fails to operate in a
first class manner
Should hours be negotiable?
CONTINUOUS OPERATION - EXHIBIT E
Except when, and to the extent that, the Demised Premises may be
untenantable by reason of damage by fire or other casualty, Tenant shall: (a)
continuously and uninterruptedly use, occupy, operate and conduct its business
in the entire Demised Premises using its best efforts to produce the maximum
volume of Gross Sales and to help establish and maintain a high reputation for
the whole Shopping Center, (b) unless prohibited by law or required by
Landlord to close, open for business each day (except Sundays) at 10:00 A.M. at
the latest and remain open for business until 10:00 P.M. at the earliest and
further hours as may be designated by Landlord from time to time, (c) open for
business on Sundays from 10:00 A.M. until 6:00 P.M. or at such other hours as
Landlord shall designate from time to time, and (d) open for business on
holidays at times as Landlord shall designate from time to time.
Notwithstanding the foregoing, if Tenant’s business is controlled by
governmental regulations, the hours of operation prescribed by such
governmental regulations shall apply. Tenant shall keep its store fully staffed
continuously, and fully stocked with saleable seasonal merchandise of quality
and otherwise appropriate to the Permitted Uses. Failure on Tenant's part to
comply with this section shall result in an assessment of Five Hundred and
No/100 Dollars ($500.00) per day.
TENANT IMPROVEMENTS/PAYMENTS
Tenant Improvements and the Payment Schedule
• Tenant Improvement = Preparation for a space to
be occupied
• Tenant Allowance = Actual Cash given to Tenant
• Payments should be based on
– % of completion of construction
– Landlord Inspections to confirm adherence to plans and
specifications
WHAT’S IMPORTANT IN THE LEASE AND WHY
• Favored Nations Clause
– Any provision or consideration given to one
store must also be given to the tenant signing
the Lease in which the favored nations clause
appears
– Places LL at serious disadvantage
– Not used very often
• Kick-outs
– Retailer figure is low
– Landlord figure is high
– Tenant to reimburse the Landlord for the cost
of any LL-paid build-outs or improvements
RELATED DOCUMENTS
Reciprocal Easement Agreement (REA)
Grants each party certain rights to their respective
property
•
Parties can be:
• property owner
• anchor store
•
Rights can include:
 Parking
 Access
 Signage
 Control Zones/Visibility
 Can impact Tenant Mix, Redevelopment Opportunities,
Extra Income Options
THANK YOU!
Questions
and
Discussion Points
http://www.mcandm.com
Elizabeth A. Napoli, SCSM, SCMD
Management Concepts & Motivations
MC & M, Ltd.
Pomona, New York