What Provisions To Review In Commercial Lease

Question: My son wants to open an 1,100 square foot frozen yogurt shop in a large Mesa shopping center. The shopping center leasing agent gave my son a 32-page lease with 7 exhibits for my son to review. My son can’t afford a lawyer to spend hours reviewing this 32-page lease and seven exhibits. Therefore, I will try to help him because I am a licensed real estate agent, but I sell homes and know very little about retail leases used by shopping centers. Any suggestions?

Answer: When we review a retail, industrial, office, or any other commercial lease for a proposed tenant, we initially look for three lease provisions: one, is there an option for the tenant to renew the lease at market rate or other reasonable rate; two, is there a reasonable rent default provision, e.g., a ten-day written notice if the tenant is late on rent; and three, are the common area maintenance charges (“CAM” charges) reasonable. [Note: CAM charges are operational expenses for the shopping center or other commercial property. These CAM charges are usually related to a “base” year with annual increases thereafter by the landlord for increased maintenance, insurance, and other operational expenses.]

In addition, your son should request both (1) an exclusivity clause, e.g., no other frozen yogurt, ice cream, or similar tenant, and (2) a clause prohibiting a noxious or noisy next-door tenant, e.g., a dog day care center. Finally, if your son is making new tenant improvements, or remodeling the existing tenant improvements, your son should request a reasonable “build out” provision, including a monetary allowance from the landlord.