Commercial Investment Real Estate January/February 2017

LEGAL BRIEFS Tug of War Devising leasing clauses to balance the landlord-to-tenant relationship. by Jerry Siegelman T 18 January | February 2017 in the shopping center. These clauses may contain a minimum number of anchor tenants and list a certain percentage of the floor area of the other stores that is either leased or open, depending on the state of the center. Preventing Risks While an article can be written on these clauses alone, most clauses provide that if the condition is not satisfied, the tenant does not have to open or does not have to operate. If the tenant chooses to open and operate, however, the tenant has the right to pay a reduced rent for a period of time until the condition is cured. If the condition is not cured within a specified time, for exam- ple 12 months, the tenant has the right to terminate the lease. COMMERCIAL INVESTMENT REAL ESTATE enants under retail leases often have negotiated termi- nation rights based on certain conditions in the lease, for example, co-tenancy failures or violations of use restrictions. What is sometimes forgotten when draft- ing these provisions is the recapture of the landlord’s cash outlays at lease inception, whether for tenant improvement allowances, broker commissions, or other similar payments. While it is tempting to include the cost of landlord’s work to prepare the leased premises for the tenant’s occupancy, the tenant would argue that these improvements will benefit the next tenant and the costs should not be recaptured by landlord. Many shopping center retail leases contain co-tenancy clauses that are conditional on the tenant’s opening or continuous opera- tion based on the landlord achieving certain leasing thresholds

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