Experienced commercial lease solicitors should be able to advise that where retail space is concerned, the terms that commercial leases are agreed on can affect not only the ability of the business to trade efficiently, but also its value and marketability if the company wishes to move on.
With that in mind, the right legal advice is absolutely essential at the outset. We have explained some of the issues that frequently come up below as a free guide. Our commercial solicitors are always available to discuss any new lease or lease renewal issues. We have acted for small tenants and landlords and major blue chip retail sector companies.
Lease Fairness Between Tenants?
The first thing a commercial property lawyer should be aware of when dealing with premises in shopping centres is that there are usually different types of lease granted to different tenants. Most retail tenants will want to know that all tenants in a shopping centre are subject to the same obligations, restrictions etc.
Unfortunately, that is rarely the case. Sometimes the landlord will agree that all tenants will have one set of restrictions where certain basic issues are concerned. These may include opening and closing times, the type of vehicles who can make deliveries, loading and unloading policy.
‘Keep Open’ Clauses
If commercial leases are for retail space, tenants often hate (but usually have to live) the fact that there will be a ‘keep open’ clause in the lease. Many major tenants such as the anchor tenant (usually a major supermarket) will flatly refuse to allow any such clause to be in the lease, but smaller tenants who rely on passing trade from the larger store for business may still be required to stay open when the anchor store is closed for refurbishment or even if it moves out permanently.
A landlord will often be unwilling to accept a lease without a ‘keep open’ clause for the smaller retailer, particularly if they are in a shopping arcade. This means that when a small business is first selecting a location and negotiating a lease, it should be reluctant about agreeing such a clause, and make inquiries as to whether other tenants are subject to the same requirement to always stay open.
Certain large food and non food retailers have a policy of never accepting a ‘keep open’ clause, and can command this because of their strength in the marketplace. Even experienced commercial lease solicitors may not be able to do the same for smaller retailers.
Rent Free periods – Bargains in a Recession
Where shopfitting is necessary, a landlord may give anywhere between one month and three months rent free period to cover a fit-out. In a recession, this rent free period could be much longer, or a lower rate of rent could be agreed for the early years of the lease.
In the recession of the 1990s, many new tenants found themselves able to negotiate rent free periods of up to two years. In certain retail developments, rent can be decided partly on the basis of annual turnover. In these circumstances, a landlord will often require remote access to cash tills to verify turnover.
Rules affecting Tenants in Shopping Centres and Retail Parks
In retail space leases, there can sometimes be a whole series of rules made by the landlord which all or some tenants are obliged to follow or allow. These can involve time, procedure and location for employee parking, unloading and loading, right landscape to outside areas, signage policies that all tenants must adhere to, agreed exterior redecorating policy, escape routes, maintenance and building works.
While commercial lease solicitors may not be able to remove all such clauses in a lease, a condition of reasonableness can often be inserted which prevents the landlord from exercising any of these rights without any regard for the tenant.
Different Rent Review and Service Charge Provisions – ‘Stitch Up’ Commercial Leases
One of the most frustrating things an experienced commercial property lawyer can come across when examining an existing lease is one that he or she properly considers could have been improved by a diligent lawyer, rather than simply allowing the landlord’s solicitors to get away with one or more so-called ‘stitch up’ provisions which may provide the tenant with problems for many years to come, and make the lease less marketable if the tenant wishes later to sell. This is perhaps most obvious in rent review and service charge provisions, which for retail space can be particularly onerous.
In commercial leases, rent review provisions should never allow a ‘headline’ rent – i.e. one which will ignore any inducements or concessions the tenant may have had at the outset in the original lease or which are normally in the market. Most commercial property lawyers who act for landlords will compromise on this.
However, the first draft of a lease submitted by the landlord’s lawyers will often reflect a headline rent review clause which effectively ‘stitches up’ the tenant when it is time for rent review. What is surprising is the number of lawyers who will not argue and negotiate for these provisions to be lost.
A number of years later when this becomes relevant, the guilty lawyer may not be working at that firm, the firm itself may have folded, and even if they are still in operation, the last thing a tenant wants is to be involved in court proceedings against the solicitors’ insurance company. It is probably that reason above all which makes it essential when considering any new lease to seek advice from a reputable and experienced commercial property lawyer.
A similar issue sometimes arises with service charge and buildings insurance, which in a new lease will be usually classified as rent, and therefore can allow a landlord to forfeit, even when if this was just the service charge element it could be arguable. This can be excluded, although this is often missed by lawyers whose clients are then bound by an unnecessarily onerous lease.