Real-Estate Leases: Avoiding Death by Clause
Declares franchise consultant Ryan Cunningham: "Leases can kill businesses." That is, unless you can get rid of damaging clauses or water them down. Cunningham offers some examples.
By David Farkas, Senior Editor -- Chain Leader, 7/1/2009
Declares franchise consultant Ryan Cunningham: “Leases can kill businesses.” Need an example? Say the anchor in your shopping center goes dark and you've signed a 10-year lease. “You are stuck,” says the former tenant representative for Jones Lang LaSalle and currently president of Javelin Solutions. That is, unless you can get rid of damaging clauses or water them down. Cunningham offers the following examples:
Walk-away clause If the tenant doesn't receive funding, use variance or permit, the lease is null and void.
Performance clause If the tenant doesn't achieve a stated gross revenue by a certain date, the lease can be terminated with minimal penalty (for example, three or six months' rent or unamortized tenant improvement).
Vacancy clause If the property loses an anchor or a tenant, or falls below X-percentage occupancy, the tenant's rent drops by X-percent. If the anchor is not replaced in a fixed period, the tenant can cancel the lease.
Signage Top-of-monument signage is no longer reserved for the tenant who occupies the most space.
Rent vs. tenant improvement tradeoff Landlords short of cash should be willing to disproportionally reduce rent if the tenant is willing to fund a larger amount of tenant improvements.
MORE: Small restaurant chains are attracting landlords like never before. But before jumping at the next great site, they might want to borrow ideas from the big boys.























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