Shopping Center Remodeling and Expansion: Model Language for Drafting a Lease

Part Two of a Two-Part Series

This two-part article explores some of the issues that arise when negotiating a lease form that contains clauses defining the rights of the landlord and obligations of the tenant with regard to remodeling or expanding a shopping center. The first part of the article discussed negotiating points that could benefit the parties during the administration of the lease. The conclusion provides some suggested model language to consider when drafting a lease.

Sample Form Lease Language for Remodeling, Rent Increases, Relocation and Abatement Rights

1. Remodeling of the Shopping Center. Landlord may, at its election (but shall in no event be obligated to), remodel or expand the shopping center. Tenant acknowledges that such remodeling or expansion, if and when it may occur, will involve barricading, materials storage, noise, the presence of workmen and equipment, rearrangement of parking areas, roadways and lighting facilities, and other inconveniences typically associated with construction. Tenant waives any claim or defense it may have against landlord and any right of offset against or deductions from rent or any other sum payable under the lease based upon interruption of or interference with tenant's conduct of business or inconvenience to its customers caused by such construction, modification or expansion.

2. Rent Increases. Should there be a remodeling of the shopping center, then from and after the completion of such remodeling and for the remainder of the lease term, the minimum annual rent shall be increased to one hundred twenty percent (120%) of the minimum annual rent otherwise payable immediately prior to the remodeling.

3. Relocation of the Premises. In the event Landlord performs a remodeling of the shopping center, Landlord shall have the right to relocate the premises to another part of the shopping center in accordance with the following:

(a) Decor. The new premises shall be substantially the same in size, decor, and nature as the premises described in the lease, and shall be placed in that condition by Landlord at its cost.

(b) Cost of Physical Relocation. The physical relocation of the premises shall be accomplished by Landlord at its cost.

(c) Notice. Landlord shall give Tenant at least thirty (30) days notice of Landlord's intention to relocate the premises.

(d) Time. Landlord shall diligently pursue the relocation of the premises and minimum annual rent and all other sums and charges payable under the lease shall abate during the period of such relocation.

(e) Incidental Costs. All incidental costs incurred by Tenant as a result of the relocation, including, without limitation, costs incurred in changing addresses on stationery, business cards, directories, advertising and other such items, shall be paid by Landlord, in a sum not to exceed ____ Dollars ($____).

(f) Frequency. Landlord shall not have the right to relocate the Premises more than one (1) time during the lease term.

(g) Size. If the relocated premises are different in area from the premises as they existed before the relocation, minimum annual rent shall be adjusted by multiplying the minimum annual rent due prior to the relocation by a fraction, the numerator of which shall be the total number of square feet in the relocated premises and the denominator of which shall be the total number of square feet in the premises before relocation.

(h) Amendment. The parties shall immediately execute an amendment to the lease stating the relocation of the premises and the adjustment of minimum annual rent, if any.

Compromises/Modifications to Remodeling and Relocation Provisions

1. Remodeling Abatement. Notwithstanding anything to the contrary set forth herein, and subject to the following conditions, Landlord may, at its sole cost and expense, remodel the exterior of the buildings within the shopping center, including the premises (“Remodeling Right”).

Landlord's Remodeling Right is subject to the satisfaction of the following conditions: (i) Landlord shall provide at least ninety (90) days' prior written notice of Landlord's intent to remodel the shopping center, (ii) Landlord shall provide Tenant a construction schedule for such work concurrently with Landlord's written notice, (iii) Landlord shall not allow any construction staging area to be located within the No-Build Area as shown on the site plan, and (iv) if Tenant determines that either (a) it is not reasonably practicable from the standpoint of prudent business management to be open for business and Tenant closes its business, then for the duration of the closure, minimum rent and all other charges required to be paid under the lease shall be abated (“Closure Abatement”), or (b) to the extent that only a portion of the premises is closed for business or there is interference with the operation of Tenant's business, and Tenant remains open for business, then for the duration of such periods, minimum rent and all other charges required to be paid under the lease shall be equitably abated (“Construction Abatement”). Landlord shall use its commercially reasonable efforts not to adversely interfere with the operation of Tenant's business, which efforts shall include, but not be limited to, minimizing any unreasonable interruption or interference with Tenant's business during the exercise of Landlord's Remodeling Right. If, however, Landlord, in good faith contests Tenant's election for either the Closure Abatement or the Construction Abatement, the parties agree to resolve such dispute by binding arbitration in the City of ______, ______, before a single arbitrator within sixty (60) days of written notice from Landlord to Tenant. Unless otherwise agreed, the arbitration shall be conducted in accordance with the Commercial Rules of the American Arbitration Association. In the event the arbitration establishes that Tenant is due an abatement of minimum rent and other charges due under the lease, Tenant may offset the amounts due Tenant by Landlord against any payment becoming due under the lease or any other payment obligations under the lease. In the event of arbitration, the prevailing party shall be entitled to recover the costs of the arbitration as determined by the arbitrator. In no event shall the cost of remodeling the shopping center as provided for herein be passed through to Tenant.

2. Remodeling of the Shopping Center. Landlord shall use its best efforts to perform any construction work within the premises during non-business hours of tenant, except in the event of an emergency. All work shall be performed consistent with Landlord's construction schedule. Landlord shall use its best efforts after completion of such construction work within the premises to restore the Premises to its substantially similar prior condition. To the extent possible, all new construction-related facilities, except for columns and footings, shall not be located within the sales floor area of the Premises, except if such facilities are above the drop ceiling or below the finished floor, and Landlord shall use reasonable efforts to locate columns and footings in non-sales floor areas of the premises or near the perimeter walls in the sales floor area of the premises.

3. Personal Property Damage. Tenant shall be entitled to compensation from Landlord for damage to Tenant's leasehold improvements, tiles, floor and wall coverings (including painted surfaces), inventory, furniture, fixtures, equipment and counter area if disturbed and/or destroyed as a result of work performed in or about the premises by Landlord, Landlord's contractors or subcontractors, except to the extent that such damage is a result of Tenant's negligence or willful misconduct (“Personal Property Damage”). As a condition to Tenant's reimbursement for damage to Tenant's above-referenced items, Tenant shall submit evidence reasonably satisfactory to Landlord that any damage to such property was a direct result of Landlord's construction together with a reasonable estimate of the cost to repair the damage with supporting documentation. If, from the standpoint of prudent business management, the items damaged cannot be repaired, Landlord shall reimburse Tenant for the reasonable cost to replace same or shall replace such items with the same or, if the same items are no longer available, substantially similar items.

4. Relocation:Tenant's Approval; Landlord's Right to Terminate; Abatement of Rent. In the event Tenant does not approve the new location proposed by Landlord within thirty (30) days after submission to Tenant of a leasing plan indicating the proposed new location (“Approval Period”), Landlord shall have the right to terminate this lease by providing Tenant with thirty (30) days' prior written notice of its election to terminate. Landlord's right to terminate shall be exercised within thirty (30) days following the expiration of the Approval Period. In the event Landlord does not exercise such right within such thirty (30) day period, such right to terminate shall expire and be of no further force or effect and Landlord shall be deemed to have waived its right to relocate Tenant. In the event of such termination, Landlord shall reimburse Tenant the unamortized portion of the costs of the leasehold improvements actually paid for and installed by Tenant, depreciated on a straight-line basis over the entire lease term. The move from the premises to the relocated premises shall be accomplished by Landlord following the completion of the new premises with the least interruption in Tenant's business operations as reasonably possible. In the event of a material interruption in Tenant's business operations as a result of the relocation, minimum annual rent and all other charges shall abate for the period of such interruption during which Tenant is unable to reasonably operate its business in the premises prior to the closure thereof.

Part Two of a Two-Part Series

This two-part article explores some of the issues that arise when negotiating a lease form that contains clauses defining the rights of the landlord and obligations of the tenant with regard to remodeling or expanding a shopping center. The first part of the article discussed negotiating points that could benefit the parties during the administration of the lease. The conclusion provides some suggested model language to consider when drafting a lease.

Sample Form Lease Language for Remodeling, Rent Increases, Relocation and Abatement Rights

1. Remodeling of the Shopping Center. Landlord may, at its election (but shall in no event be obligated to), remodel or expand the shopping center. Tenant acknowledges that such remodeling or expansion, if and when it may occur, will involve barricading, materials storage, noise, the presence of workmen and equipment, rearrangement of parking areas, roadways and lighting facilities, and other inconveniences typically associated with construction. Tenant waives any claim or defense it may have against landlord and any right of offset against or deductions from rent or any other sum payable under the lease based upon interruption of or interference with tenant's conduct of business or inconvenience to its customers caused by such construction, modification or expansion.

2. Rent Increases. Should there be a remodeling of the shopping center, then from and after the completion of such remodeling and for the remainder of the lease term, the minimum annual rent shall be increased to one hundred twenty percent (120%) of the minimum annual rent otherwise payable immediately prior to the remodeling.

3. Relocation of the Premises. In the event Landlord performs a remodeling of the shopping center, Landlord shall have the right to relocate the premises to another part of the shopping center in accordance with the following:

(a) Decor. The new premises shall be substantially the same in size, decor, and nature as the premises described in the lease, and shall be placed in that condition by Landlord at its cost.

(b) Cost of Physical Relocation. The physical relocation of the premises shall be accomplished by Landlord at its cost.

(c) Notice. Landlord shall give Tenant at least thirty (30) days notice of Landlord's intention to relocate the premises.

(d) Time. Landlord shall diligently pursue the relocation of the premises and minimum annual rent and all other sums and charges payable under the lease shall abate during the period of such relocation.

(e) Incidental Costs. All incidental costs incurred by Tenant as a result of the relocation, including, without limitation, costs incurred in changing addresses on stationery, business cards, directories, advertising and other such items, shall be paid by Landlord, in a sum not to exceed ____ Dollars ($____).

(f) Frequency. Landlord shall not have the right to relocate the Premises more than one (1) time during the lease term.

(g) Size. If the relocated premises are different in area from the premises as they existed before the relocation, minimum annual rent shall be adjusted by multiplying the minimum annual rent due prior to the relocation by a fraction, the numerator of which shall be the total number of square feet in the relocated premises and the denominator of which shall be the total number of square feet in the premises before relocation.

(h) Amendment. The parties shall immediately execute an amendment to the lease stating the relocation of the premises and the adjustment of minimum annual rent, if any.

Compromises/Modifications to Remodeling and Relocation Provisions

1. Remodeling Abatement. Notwithstanding anything to the contrary set forth herein, and subject to the following conditions, Landlord may, at its sole cost and expense, remodel the exterior of the buildings within the shopping center, including the premises (“Remodeling Right”).

Landlord's Remodeling Right is subject to the satisfaction of the following conditions: (i) Landlord shall provide at least ninety (90) days' prior written notice of Landlord's intent to remodel the shopping center, (ii) Landlord shall provide Tenant a construction schedule for such work concurrently with Landlord's written notice, (iii) Landlord shall not allow any construction staging area to be located within the No-Build Area as shown on the site plan, and (iv) if Tenant determines that either (a) it is not reasonably practicable from the standpoint of prudent business management to be open for business and Tenant closes its business, then for the duration of the closure, minimum rent and all other charges required to be paid under the lease shall be abated (“Closure Abatement”), or (b) to the extent that only a portion of the premises is closed for business or there is interference with the operation of Tenant's business, and Tenant remains open for business, then for the duration of such periods, minimum rent and all other charges required to be paid under the lease shall be equitably abated (“Construction Abatement”). Landlord shall use its commercially reasonable efforts not to adversely interfere with the operation of Tenant's business, which efforts shall include, but not be limited to, minimizing any unreasonable interruption or interference with Tenant's business during the exercise of Landlord's Remodeling Right. If, however, Landlord, in good faith contests Tenant's election for either the Closure Abatement or the Construction Abatement, the parties agree to resolve such dispute by binding arbitration in the City of ______, ______, before a single arbitrator within sixty (60) days of written notice from Landlord to Tenant. Unless otherwise agreed, the arbitration shall be conducted in accordance with the Commercial Rules of the American Arbitration Association. In the event the arbitration establishes that Tenant is due an abatement of minimum rent and other charges due under the lease, Tenant may offset the amounts due Tenant by Landlord against any payment becoming due under the lease or any other payment obligations under the lease. In the event of arbitration, the prevailing party shall be entitled to recover the costs of the arbitration as determined by the arbitrator. In no event shall the cost of remodeling the shopping center as provided for herein be passed through to Tenant.

2. Remodeling of the Shopping Center. Landlord shall use its best efforts to perform any construction work within the premises during non-business hours of tenant, except in the event of an emergency. All work shall be performed consistent with Landlord's construction schedule. Landlord shall use its best efforts after completion of such construction work within the premises to restore the Premises to its substantially similar prior condition. To the extent possible, all new construction-related facilities, except for columns and footings, shall not be located within the sales floor area of the Premises, except if such facilities are above the drop ceiling or below the finished floor, and Landlord shall use reasonable efforts to locate columns and footings in non-sales floor areas of the premises or near the perimeter walls in the sales floor area of the premises.

3. Personal Property Damage. Tenant shall be entitled to compensation from Landlord for damage to Tenant's leasehold improvements, tiles, floor and wall coverings (including painted surfaces), inventory, furniture, fixtures, equipment and counter area if disturbed and/or destroyed as a result of work performed in or about the premises by Landlord, Landlord's contractors or subcontractors, except to the extent that such damage is a result of Tenant's negligence or willful misconduct (“Personal Property Damage”). As a condition to Tenant's reimbursement for damage to Tenant's above-referenced items, Tenant shall submit evidence reasonably satisfactory to Landlord that any damage to such property was a direct result of Landlord's construction together with a reasonable estimate of the cost to repair the damage with supporting documentation. If, from the standpoint of prudent business management, the items damaged cannot be repaired, Landlord shall reimburse Tenant for the reasonable cost to replace same or shall replace such items with the same or, if the same items are no longer available, substantially similar items.

4. Relocation:Tenant's Approval; Landlord's Right to Terminate; Abatement of Rent. In the event Tenant does not approve the new location proposed by Landlord within thirty (30) days after submission to Tenant of a leasing plan indicating the proposed new location (“Approval Period”), Landlord shall have the right to terminate this lease by providing Tenant with thirty (30) days' prior written notice of its election to terminate. Landlord's right to terminate shall be exercised within thirty (30) days following the expiration of the Approval Period. In the event Landlord does not exercise such right within such thirty (30) day period, such right to terminate shall expire and be of no further force or effect and Landlord shall be deemed to have waived its right to relocate Tenant. In the event of such termination, Landlord shall reimburse Tenant the unamortized portion of the costs of the leasehold improvements actually paid for and installed by Tenant, depreciated on a straight-line basis over the entire lease term. The move from the premises to the relocated premises shall be accomplished by Landlord following the completion of the new premises with the least interruption in Tenant's business operations as reasonably possible. In the event of a material interruption in Tenant's business operations as a result of the relocation, minimum annual rent and all other charges shall abate for the period of such interruption during which Tenant is unable to reasonably operate its business in the premises prior to the closure thereof.