Before you sign a lease as a tenant of a shopping center or mall lease, there are some very important tips to keep in mind.
1. Personal guarantee. This is a very critical issue. The landlord would like to keep you as a personal guarantor of the lease for the entire term of the lease and all renewal terms. This means that your personal assets are being used to guaranty all rent and other charges under the lease. This is quite onerous for a tenant of a lease. If the tenant has not been in default, why shouldn’t the tenant be released from personally guaranteeing the terms of the lease? When our attorneys negotiate a commercial lease for our clients, we always push to limit the guaranty to a shortened time period which is less than the first term of the lease. Landlords also would like to keep a personal guaranty by a tenant even after that individual has sold the business and the lease has been assigned to the new buyer/tenant. This means that you could be enjoying life after owning the business and be required to pay the balance of rent remaining on the lease you assigned to the buyer of the business. Clearly this is not acceptable and should be heavily negotiated.
2. Operating expenses or CAM charges. In addition to the base rent you will be paying, typically you will also be responsible for additional charges for the operation of the shopping center or mall. These charges are known as Operating Expenses or Common Area Maintenance (CAM) charges. Even if you negotiate a cap on the annual increases of these charges, which is wise, you still can save money on your bottom line each month by stipulating what is to be excluded from the landlord’s CAM or operating expense calculation. Our attorneys have a list of 28 items to be excluded from these charges. The lease should also provide you with the ability to review the landlord’s books and records to determine if you are being charged properly.
3. Default and Remedy provisions. When you sign a lease, you are giving the landlord rights to bring legal actions against you for any default in rent, additional charges, or other obligations you have under the lease. You want to make sure that you are given written notice of the default and an opportunity to cure that default (typically one period for monetary default and a shorter period for non-monetary default). You also want to make sure that the remedies of the landlord are not harsher than need be. For example, the landlord should not have the right to forcibly enter the premises and take your personal property.
For questions about a lease review, please contact Nancy Lanard, Esquire, 215-392-0030 x101 or via email at [email protected].