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Tenants are generally provided time to prepare the retail space for occupancy prior to the date when they must begin paying rent. However, in hot markets and for some very desirable properties or spaces, landlords will be able to require that tenants pay for retail space beginning at the time the lease is executed. In such cases, it is possible the tenant may pay for space for four to 12 months, or even longer, prior to commencing operations within the retail space. However, this is the exception rather than the rule. In most cases, tenants are provided a reasonable amount of time to prepare the space for occupancy.

The lease should address the contingency regarding what happens if it is not possible to occupy the retail space on the contemplated date. For example, there could be delays in obtaining signage permits, usage permits, construction permits, and in completing construction due to a union strike.

The condition of the space which the landlord provides the tenant and the tenant improvement allowances both require careful consideration and documentation. If the retail space is currently built in a configuration which does not suit the prospective tenant, will the landlord demolished the existing improvements and dispose of the debris?

If the landlord is providing a tenant improvement (TI) allowance, what are the mechanics of performing the construction and funding the cost of construction? If the cost of the construction is less than the TI allowance, is the tenant allowed to keep the excess funds? Is union labor required?

Is the tenant required to use a general contractor? Should the landlord be compensated for inspecting construction? Alternatively, is the landlord required to provide space which complies with an agreed-upon set of plans at its own expense?

If the space is not currently ADA compliant, who should pay for the cost of making it ADA compliant?

Retail space expenses are typically paid by the tenant. This includes items such has common area utilities, common area maintenance, insurance, property taxes and management. It would not include items such at tenant improvements for new tenants and leasing commissions for new tenants.

Non-cash expenses such as depreciation and amortization would also be excluded. While each lease is negotiable, most retail leases are done on a net basis with the tenant paying for most operational expenses.

Repair and replacement of the roof is typically handled by the landlord. However, in some leases the tenant is responsible for this expense. Repair and replacement of the HVAC system has always been a negotiated matter. In many leases the tenant pays for repairs and the landlord pays for replacement. This can cause disagreement as to whether the HVAC should be repaired again or replaced. Electrical and plumbing within the tenets defined space is typically the tenets responsibility.

Payment of the brokerage fees should be addressed in the lease. If a tenant rep broker has been working with you to find space to negotiate a lease, you should have signed a representation agreement prior to working with the broker. This agreement would likely provide your commitment to work exclusively with the broker for a defined period. (Include a 30-day cancellation clause in case you are not satisfied with the work performed by the broker. In many cases, this agreement would still provide a level of protection to the broker if you lease space he had suggested.)

Your agreement with the broker should also document who is responsible for paying the brokerage fee. In most cases, this will be the landlord. However, even if you have already documented your agreement with the broker, it is better to affirm the agreement within the lease to minimize any misunderstandings.

Expense escalations are relevant when the landlord is paying a base level of expenses and when the tenant is paying expenses. With a typical gross lease, the landlord pays all expenses and the tenant pays expenses in excess of a base level. (Gross leases are atypical for retail.) The base level is typically the operating expenses for the year the lease is signed. The "expense escalations", would be expenses in excess of this base level which the tenant is responsible for paying.

Some leases also provide a cap on increases in expenses. To provide more certainty for the tenant's cost of occupancy, the tenant may request that property tax increases do not exceed 5% in any year. Property tax increases can be enormous in some states. For example, initial property tax assessments in Texas for retail buildings have increased by 20% to 100% for many retail building owners. In many cases, these large initial assessments have been successfully reduced to a level much closer to the prior year's value.

However, the property tax assessment process can be arbitrary at times. If the property taxes did increase by 20% or 100%, the landlord would be responsible for the increase in excess of 5% for the example given. There are also sometimes expense escalation caps for utilities, insurance, total expenses and other items.

A co-tenancy clause for retail defines a tenant's right to terminate the lease if another tenant ceases operations. For example, consider a grocery anchored neighborhood shopping center. Let's assume Kroger's, a nationally known grocery retailer, is the anchor. Bob's dry cleaner store decides to lease space in the center because it believes the Kroger versus will draw all a large volume of traffic. There's an agreement to pay rent commensurate with the traffic which should be generated by Kroger. However, five years after the center is built Kroger decides to "go dark".

In other words, it ceases operations at this location. A co-tenancy clause would provide Bob an option to terminate his lease. There will typically be a defined period for terminating the lease based upon the co-tenancy clause.

Eminent domain is the right of government to take private property. Historically, eminent domain was limited to taking private property for public purposes. However, the US Supreme Court expanded eminent domain to include taking private property for private uses. In most cases, property owners are compensated for "takings" through eminent domain.

Issues related to leasing retail space include who retains compensation for a leasehold estate, what happens if eminent domain takes an amount of parking which makes operation of the Senate set retail center impractical and are there any rent abatements during construction related to a partial taking of the retail center.

A leasehold estate is a tenant's interest in real estate obtained through a lease. A leasehold estate becomes meaningful when contract rent is substantially lower than market rent. Having the right to use retail space for a payment well below market rent has value. In the event of a complete taking up (when the government takes the entire retail center) the lease needs to address proceeds of the tenant's leasehold estate. Do they belong to the tenant or to the landlord?

In any "partial taking", the government only takes a portion of the retail center. This may or may not include any portion of the building. For the sake of discussion, let's assume a retail center with 10,000 ft.˛ and 50 parking spaces. The 50 parking spaces are in two rows of 25. One row is along the street and one row is along the front of the building. The current amount of parking is just barely adequate. The condemnation will "take" the 25 parking spaces along the street. This leaves the property with only 25 parking spaces, or about half of what is necessary. The lease needs to define the rights and responsibilities of both the tenant and the landlord in event of a partial taking.

Consider addressing the payment of rent during road construction related to eminent domain. Most leases are silent on this point. In many cases, the loss of business due to construction is not compensated. The landlord must pay his expenses and mortgage payment during construction. The tenant's sales often decline precipitously during construction. There is no easy answer to equitably address this issue.