Articles Posted in Commercial Leasing

anchorNews outlets have recently reported that numerous Sears locations will be imminently closingOur readers are most likely aware that Toys R Us has closed all of its locations due to its bankruptcy filing.  Both Sears and Toys R Us would be considered anchor tenants by commercial landlords.  An anchor tenant leases a large square footage space or is of the nature of a large and influential company such as Starbucks or Apple.  Anchor tenants such as department stores and movie theaters draw customers to the mall or shopping center, so that the same customer continues to shop at the premises and patronize its other businesses.  Once an anchor tenant closes, the landlord should seek to locate another anchor tenant to fill the vacant space, so that the shopping mall will draw customers to the anchor location and benefit the other businesses in the mall by drawing shoppers.  This post will examine the provisions that a potential anchor tenant will ask its attorney  to have included in a lease.

Exclusive use can often be demanded by an anchor tenant.  Should Bed Bath and Beyond be the proposed tenant, it may require in its lease that the landlord may not lease another space in the shopping center to a tenant that sells home décor, bedding, kitchen equipment and the like, so as to minimize competition that may hinder its business.  Should the landlord violate such an exclusive use provision, the tenant’s lawyer may have negotiated a rent abatement and right to terminate the lease.  In addition, many anchor tenants present their own form of lease to the landlord, rather than sign the landlord’s version of the lease.

Signage is very important to anchor tenants.  Anchor tenant leases may include a provision that the anchor tenant must always be the first name on mall signage and be of the largest font size.  Visibility of signage is also important, so that the anchor store’s name is listed on internal building directories, directional signs throughout the mall and the like.

deli-300x200Recently, New York City Council Speaker Corey Johnson proposed a new law called the “Small Business Jobs Survival Act.”  The Mayor of New York City, Bill de Blasio, has questioned the legal underpinnings of the proposed law.  The law has also been described as legalizing commercial rent control in New York City.  What are the legal issues involved in commercial rent control, and how will it affect small business owners with commercial leases in New York?  This blog post will address these questions.

Currently, unlike certain residential properties, commercial properties are not subject to rent regulation such as rent control and rent stabilization.  Many residential apartments in New York City, as well as Westchester County, are subject to rent regulation under the rent control and rent stabilization statutes.  What this means is that tenants living in apartments subject to these regulations, under certain conditions, are entitled to perpetual renewal leases which cannot increase rent more than a certain percentage as set by the New York City Rent Guidelines Board.

However, these regulations do not currently apply to commercial properties.  If a store is being rented to a tenant, only the free market regulates the amount of rent to be paid, and whether the lease will be renewed.  Let’s give an example.  A grocery store signs a commercial lease for 5 years with the rent set at $4,000.00 per month.  At the end of the lease term, if the parties have not signed a new lease, the tenant would be considered a holdover and subject to eviction.  Absent any specific provisions in the current lease relating to a lease renewal, the landlord is under no legal obligation to offer a new lease to the tenant.  The landlord is also free, at the end of the lease term, to request a rent increase to $7,000.00 per month.  If the tenant does not agree to the new rental rate, again, they would have to vacate the premises or be subject to eviction.

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Landlords who lease commercial space typically concern themselves with the quality of a proposed tenant so that such character is consistent with that of other tenants occupying the property.  Such concern is reflected in particular provisions found in a commercial lease.  This post will discuss some of the more common tenant “character” provisions.

Signage is important to commercial tenants so that the store’s location is visible and identifiable to potential customers.  Because landlords are concerned that certain signage may look physically unpleasing or be harmful to the reputation of the property, landlords typically specify signage requirements in the lease.  The landlord will reserve the right to approve the signage sought to be used by the tenant and will usually not allow a sign that appears to be too large or has too much neon compared to other signs already used at the property.  Of course, signs containing vulgar words will not be permitted.  When negotiating your lease, your attorney  should also negotiate an exhibit to the lease which will contain a drawing of exactly how your sign will look with specific dimensions referenced.  That way, the parties will have already decided on the approved signage before the lease is signed.

Landlords also want to control store hours.  Many leases have provisions to that effect.  In a shopping mall environment, most leases will require stores to be open for the same number of hours.  Such a provision benefits all tenants, as the mall is more likely to be a thriving place in which to do business if shoppers can visit more than one store.  On the flip side, landlords may demand that a public storefront be closed after a certain hour so that visitors do not “hang out”, impairing the reputation of the property or creating too much noise, impacting neighbors of the property.

walmart-300x181Recent news in Westchester County is that the Wal-Mart store in downtown White Plains is scheduled to close on August 10 of this yearOur blog  has recently explored the legal issues relating to a store closing for good, especially where there is an existing lease.

An interesting point regarding the Wal-Mart closing is that it is been suggested that the store be replaced with a residential building or be converted as exists into apartments.  Many area residents who decide to move out of New York City are seeking homes in Westchester County.  However, Westchester has a limited housing stock, and many of the current homes in Westchester date from the immediate post-war period, or are even older, and the lack the amenities many new home buyers are seeking.

In addition, the economics of supply and demand mean that due to the low current supply of housing stock in Westchester, housing prices are quite high and will likely continue to rise over time.  Since demand is unlikely to decease, the only way to lower prices would be to increase the supply of housing.  Other areas in the United States are experiencing similar housing shortages.  Further, recent changes to the federal income tax laws concerning limits on the deduction of real estate taxes have affected the real estate market.

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News outlets recently reported on the demise of retailer Toys R Us in bankruptcy.  Initially, it was thought that the famous chain toy store would continue operations under its bankruptcy plan.  Then, those in charge of the company found that it was necessary to close all locations.  Such a decision has profound ramifications on the commercial property and leasing market throughout the United States.  This post will address the legal issues raised by the closure of Toys R Us locations.

Most likely, the locations occupied by the stores were not owned by Toys R Us, but were leased under long term leases. Commercial leases typically are long term arrangements, for about ten years with potential options to renew.  Of course, during such leases, the economy or style of doing business may change, leading to a lease arrangement that is no longer viable or sensible for the tenant.  For instance, with the rise of online shopping in recent years, the need for tenants to have large locations in relative proximity to one another no longer makes sense.  It may become necessary for the tenant to renegotiate a lease when times change and the business model along with it.   Experienced counsel should be involved in any such lease renegotiation for a modification or amendment as the case may be.  In exchange for an amendment or modification, the landlord may ask for concessions from the tenant.

In considering Toys R Us in the area served by our firm , one may be familiar with a location on Central Avenue that was built specifically for the store.  The owner of the property may have issues with the store abandoning the property, as it may be suited only to this tenant.  The landlord may need to become creative in considering the future use of the space, as did the owner of Lord & Taylor’s flagship location.