THE LEASE AND ITS ADMINISTRATION

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THE LEASE AND ITS ADMINISTRATION

• Elizabeth A. Napoli, SCSM, SCMD
• Management Concepts Motivations
• MC M, Ltd.
• Pomona, New York

http//www.mcandm.com
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WHAT TO DO BEFORE THE LEASE IS SIGNED

• Create a positive relationship with your Leasing
  Representative.
• Local Managers should create a list of up-to-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 site-specific or
  corporate operational issues.

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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.

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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

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DONT ALLOW KEY CLAUSES TO BE

• Watered down
• Eliminated
• Omitted by oversight
• Leasing Representative
• Legal Team

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MANAGEMENTS ROLE

• Management must consider the needs of
• The Shopper
• The Tenant
• The Owner

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MANAGEMENTS 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

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LEGAL COUNSELS 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

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WHATS 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.

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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?)

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PERCENTAGE RENT CALCULATION
Percentage Rent Overage Rent
Annual Rent

Breakpoint
Percentage Rent Factor
Gross Sales Breakpoint

Applicable Sales to Percentage Rent
Applicable Sales x Percentage Rent Factor

Percentage Rent
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PERCENTAGE RENT CALCULATION
Percentage Rent Example
Annual Rent

100,000
Annual Sales

1,200,000
Percentage Rent Rate

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100,000 / 10

1,000,000
1,200,000 - 1,000,000

200,000
200,000 x 10

20,000 in Percentage Rent
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EFFECTIVE RENT CALCULATION

• Effective Rent Minimum Rent Percentage Rent
• Example
• Minimum Rent 100,000
• Percentage Rent 20,000
• Effective Rent 120,000

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WHATS 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

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WHATS 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

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CAM EXHIBIT B

• Common Area Charge Common Area Charge means
  the Landlords gross actual costs and expenses of
  every kind or nature incurred by or imposed upon
  Landlord, in or by reason of Landlords
  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 off-site
  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?)

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CAM RECOVERY CONSIDERATIONS

• CAM Common Area Maintenance
• CAM Recovery Calculation
• Pro-Rata basis Leasable
• Proportionate Share Basis Leased
• Understand the importance of these terms

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CAM EXHIBIT C

• Tenants 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, Tenants 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).

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WHATS 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?

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TAXES - EXHIBIT D

• Tenants 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,
  Tenants 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).

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WHATS 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 LLs right to Lease
  Termination.)

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WHATS IMPORTANT IN THE LEASE AND WHY

• Co-Tenancy
• Huge issue in current retail climateWHY?
• Tenants 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

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WHATS 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?

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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 1000
  A.M. at the latest and remain open for business
  until 1000 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
  1000 A.M. until 600 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 Tenants
  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.

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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

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WHATS 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

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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

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THANK YOU!

• Questions
• and
• Discussion Points

Elizabeth A. Napoli, SCSM, SCMD Management
Concepts Motivations MC M, Ltd. Pomona, New
York
http//www.mcandm.com