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LEASE LANGUAGE: Streamlining negotiations

While retail adapts to each season, retail lease contracts have remained fundamentally unchanged for decades. Negotiations can be slow and arduous, due in large part to archaic terminology still used in modern lease documents. Jones Lang LaSalle recognized and addressed the need to improve the negotiation process by creating a new lease contract that provides for both tenant and landlord requirements clearly and concisely.

Most shopping center leases used today evolved from the chain store leases of the 1920s, 1930s and 1940s. Over the years, these forms were modified to incorporate changes necessary for the modern retail environment, including provisions relating to common areas and merchants' associations.

Although other disciplines, such as architecture and construction, have generated standard, trade association-promulgated forms, the shopping center industry had no such standardization. Many existing lease forms were drafted by lawyers who specialized in the shopping center industry, and were typically weighted in the landlord's favor. One example is that in some leases CAM costs included numerous items tenants thought were unreasonable, such as costs related to property construction and expansion — costs tenants viewed as capital expenses that should solely be the responsibility of the owner.

In today's very competitive retail markets, knowledgeable merchants heavily negotiate many areas of a lease, with the result that landlord-oriented forms rarely survive intact. In executing a leasing transaction with outdated forms, retailers and owners find themselves pouring over legal documentation for weeks or even months before final agreements are reached and tenant buildout can begin.

With the goal of streamlining the lease negotiation process, Jones Lang LaSalle has been working over the past year to develop a new, more efficient lease form. The process began by researching and reviewing various forms used by major developers and management companies across the country and comparing them to existing standard forms. Discussions to strategize ways to reduce negotiating time and accelerate lease execution were then held with the company's outside counsel as well as with attorneys of major tenants, developers and management companies.

The end result is a new lease form written in plain, unambiguous language that responds to tenant concerns but still protects the landlord's interest. Many of those items routinely negotiated in the “old” lease forms were modified to be more neutral. Much consideration was given to CAM provisions, a portion of the lease that tenants routinely negotiated. In addressing this part of the new lease form, Jones Lang LaSalle listed specific items typically of concern to tenants, specifying that they would not be a part of CAM expenses.

Another modified provision relates to assignment and subletting. Most leases stipulate a tenant cannot reassign or sublet space without the landlord's consent. Tenants wanted the right, under certain circumstances, to assign their lease without obtaining landlord consent. To address this point, Jones Lang LaSalle specified under which conditions the tenant could assign its lease without the landlord's consent.

The new lease form is drafted in a larger font and is one-third the size of its predecessor. It is more organized, easier to read and omits archaic language so that it is quickly understood. The new document also includes provisions needed due to changes in technology, such as specifying the requirements for satellite dish installation or wiring for broadband access.

Another change says tenants will be able to access and review the new form electronically, rather than waiting to receive a draft by mail. This real-time association speeds up the negotiation process, benefiting all parties involved. To protect the integrity of the document, changes to the lease form cannot be made by tenants.

Clients of Jones Lang LaSalle reacted to the new lease documentation form with enthusiasm and overwhelming approval. The company anticipates full implementation this fall.

While contract negotiations will continue to be a part of the leasing process, Jones Lang LaSalle is improving and expediting the process for both the tenant and landlord through its new lease form.

Catherine Williams is vice president, legal, at Jones Lang LaSalle, where she oversees the direction of the retail legal department.

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