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LEASE LANGUAGE: Avoiding big-box blocks

In today's complex world of changing events, attorneys must complete the lease negotiations for big-box deals promptly and efficiently. To accomplish this goal, each attorney must manage the various stages of the negotiation in a timely manner to provide an executed document truly reflecting the deal. In doing so, the attorney must take responsibility for coordinating responses from various departments in order to review and respond quickly and appropriately to various lease issues. Big-box leases require several participants and the attorney should take the lead role.

The following issues should be reviewed and addressed by the attorney handling a big box deal whether they represent landlord or tenant, whichever the case may be:

  1. Brief your opposing counsel at the onset as to your level of authority. If you have very little, then create ways with your client to expedite responses to the initial comments or have the decision makers available for the subsequent conference calls. Return calls promptly and disseminate information with required response dates.

  2. Experience Counts. If your practice is only occasionally retail leasing, a big-box lease may not be one for you to manage. You will spend too much time addressing issues you will not substantially change and not address the clauses necessary to shape the deal between landlord and tenant. This would include documenting the flow of events properly, from initial plans through construction, delivery and tenant opening, and ultimately, coordinating such critical issues of co-tenancy, exclusives and assignment for your client.

  3. Address and coordinate the prohibited uses and exclusive issues early. Have a good understanding of the tenant roster and finalize as many exclusives from these tenants as soon as you can. In addition, understand the impact of potential restrictions on non-retail uses such as restaurants and any outparcel restrictions. These issues can become a nightmare and potentially create vacant space in the shopping center for the landlord.

  4. Define co-tenancy clearly. The actual leasing of a center from the “prospective” leasing discussed during landlord/tenant negotiations may have changed. Who is really signing leases and when will they open? Be prepared to offer alternative tenants. The tenant stepped to the table based upon certain landlord cotenancy representations; the commitment is now being documented. Also, be sure that the tenant's remedies are clearly defined and understood by your client. In short, the landlord should offer tenancies that are real and available to avoid embarrassing penalties and potential cash flow shortfalls raising mortgage concerns.

  5. Small shop covenants, comments and clauses are not the cornerstone of big box leases. For example, big box tenants need liberal rights to assign. Therefore, provided the landlord rental income stream is protected and exclusive rights not violated, big box tenants require exit strategies. Answers are found in rights to recapture, a share, if applicable, in profits, and other stipulated rights and obligations of the parties upon any assignment. The Use Clause is another example of such a cornerstone clause. In short, boilerplate comments which are non-substantive and sometimes borderline nuisance comments should be carefully considered, if used at all, and the benefit of such comments should be measured by the suggesting counsel since they will be challenged vigorously in big box leases.

  6. Commence preparing your portion of the exhibits to the leases during the initial lease negotiations. In too many situations, the body of the lease is ready for mutual execution but the exhibits are incomplete due to someone's failure to produce information (title matters, site plans, etc.), construction exhibits and review counterpart documentation (SNDA, memos of lease, waivers). Each attorney must coordinate the third parties involved to produce the exhibits in a timely manner.

In today's marketplace, both tenant and landlord attorneys take responsibility for finalizing the document and are held accountable to coordinate the timely review of clauses and exhibits which affect the lease finalization. Such steps will avoid embarrassing terminations of the deal due to unnecessary and extensive delayed negotiations. Remember, prompt lease negotiation management and timely, efficient deal conclusion is the value we owe our clients today.

Ben Viloski is managing partner at Pittsburgh-based Shopping Center Law Associates, which provides LOI and lease representation, site selection, real estate consulting, portfolio lease review, REA/sublease/SNDA/acquisitions/sales/expert witness testimony & related services.

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