Leasing Commercial Space in a Mall

If you are considering leasing commercial space in a mall, there are issues you should consider. Here are just a few tips to create a tenant-friendly lease

Rental Rates

Rents are based on square footage. Most square footage rates are expressed in dollars per year per square foot. For example $60 per square foot a year would represent $5 per square foot a month. If the retail space is 5,000 feet, the monthly rate will be $25,000. Current market conditions will control the leverage with which a prospective tenant can negotiate the rental rates. If the mall needs more foot traffic, and there are a lot of empty stores, a prospective tenant may have more leverage in this situation to negotiate a more tenant-favorable deal.

Pro Rata and CAM Expenses

Commercial leases will stipulate that the tenant pay a pro rata share for property expenses such as utilities, property taxes, lighting, water, sewer, garbage removal, improvements as well as security. The pro rata share should be based on the percentage of common area for which the tenant is responsible. Common area maintenance (CAM) costs include general areas such as walkways, parking spaces, and restrooms.

Repairs and Improvements

Issues like repairs and structural improvements need to be negotiated. In certain situations, the larger portion of the costs for repairs may fall with the owner. However, if the tenant requests to make desired improvements, he or she can negotiate that the landlord pick up a portion of the costs with the larger portion going to the tenant. In these cases, the landlord will prefer that an experienced contractor provide the improvements. Sometimes a landlord will provide build out money to a tenant for space improvement. In this case, improvement plans will be subject to the landlord's approval.

Lease Terms

Landlords favor long-term tenants and is more likely to provide more concessions if the tenant will be in the space for at least 5 years or more. A longer-term lease is also favorable for a small business leasing less than 5,000 square feet.

If a tenant is leasing space because of the presence of an anchor store that brings in foot traffic to the mall such as a Target, the tenant may suffer a downturn if the anchor store closes or decides to move. A tenant might want to negotiate a "going dark" provision which will stipulate that the tenant can cease operations in this case or pay a reduced rental rate.

A tenant may negotiate the right to sublease space to another business in case of an economic downturn.

Default terms should also be expressed in the lease. A shaky economy often results in stores going bankrupt. A tenant and landlord should discuss possible penalty fees in case the tenant cannot complete the lease terms.

Usage

Originality also provides leverage. If a tenant's business is similar to others in the mall, the mall may become saturated. An owner wants a even mix of stores and services for prospective customers. If a tenant foresees changing the use of the business, the landlord must be informed.

Find a Lawyer

If you are considering leasing commercial space in a mall, you need to negotiate terms that are advantageous to you. Consult a lawyer experienced with commercial real estate to discuss how to draft a favorable commercial lease agreement.