You might have heard that the Eastern Hills Mall in Clarence is considering the possibility of undergoing a significant renovation. As development in Western New York continues to surge, the Mall, a 20th Century concept, is positioned to either adapt with the times, or be a relic of the past. This blog post will explore several important things to consider if you are interested in signing a commercial lease.
Recently, the Clarence Town Board created a “Lifestyle Zoning Code,” seeking to create an “overlay district” of both commercial and residential activity. Although no zoning changes have been made to the Eastern Hills Mall property, a zoning change, if approved, would allow development of a modern center for living and commerce with smaller, more upscale retail stores, more walkability, and the possibility for residential living spaces to be developed. Considering that the health of dated Malls in Western New York is not strong, and that Clarence is actively trying to manage the commercial feasibility of the mall, there is great potential for business growth at the new center and even the areas surrounding the property.
If the Mall underwent such a drastic change, it may provide a fertile ground for investment considering the prime location of the property and the buzz a new mixed-use retail and residential space would generate. Regardless of the location, there are certain things to consider before signing a commercial lease.
- Term Length:
Most commercial developers prefer to lock in tenants to long-term leases. This enables developers to more easily recoup the costs of their investment. Hiring brokers, advertising the space, as well as any time the space is unoccupied, all cost the developer money. Further, a substantial overhaul of existing commercial space may be facilitated through debt financing (i.e. bank loans). This means that due to financial constraints (i.e. loan payments), property owners that recently renovate their space are unlikely to accommodate shorter lease terms for seasonal or start-up businesses.
- Rent Increases:
It is important to review the lease carefully to understand how your rent can be increased. Most lease agreements will have stated rent levels for each year of the lease. Some commercial leases may tie rent increases to inflation, which changes from year to year, but generally has hovered around 2% in recent years.
Many lease agreements also require tenants to shoulder the costs of improvements made to the overall property. For example, the property owner’s cost to repairs to HVAC systems, elevators, parking, interior structures, or even real estate tax increases may be passed on to the tenants.
- Breach, Default, & Legal Action:
While no new business wants to think about it, it is important to familiarize yourself with the termination and breach sections of your lease agreement. Lease agreements may limit your ability to terminate the lease, go to court, seek damages, or may even require you to bear the property owner’s legal costs in the event of a dispute. As the property owner drafts most lease agreements, they slant heavily in their favor. First time lessees should beware.
- Tenant Improvements to the Space:
Owners of older commercial spaces will likely be more permissive in allowing tenants to renovate or modify the space to improve its overall commercial attractiveness. They are also more willing to negotiate temporary rent abatement in exchange for the tenant bearing the costs of improvement. The catch here is that any improvements must remain after the expiration of the lease. New commercial spaces are different. The property owner may be less willing to offer rent abatement, and may not allow modification of the space. Make sure to be aware of these restrictions before signing, and evaluate how they affect your business.
- Know Your Competition:
This Clarence Lifestyle Center will likely have a strong demand for a fitness/workout facility, an upscale health food store, and an entertainment complex for residents or shoppers. If you are in the business of providing any of these services or products, you may want to negotiate a clause with the property owner that restricts other tenants from providing similar services.
- Hours and Logistics:
Consider the hours of operation for the mall or commercial space. Malls typically require tenants to maintain the same business hours, or greatly limit their flexibility to change hours or days of operation. You should consider how these restrictions might affect your operating costs.
You should also consider the amount of parking available. Does your business experience an even flow of customer traffic? Or does it experience periods of high volume and low volume? If the commercial space does not have adequate parking to accommodate your customers, your business will likely suffer. You may wish to consider negotiating designated reserved parking with the property owner.
- Hidden Fees:
Check if the lease requires the tenant to pay for business essentials such as high-speed internet connectivity, property maintenance, or property taxes. These fees will add up and affect your bottom line.
Having an attorney review your commercial lease agreement is the best way to protect your interests. For more information, or to have your lease agreement drafted or reviewed, please contact our office for a free consultation.
Disclaimer: This blog is made available by Kloss, Stenger & LoTempio for educational purposes only. It is not intended to provide legal advice nor form any attorney client relationship between the reader and Kloss, Stenger & LoTempio. You should always seek professional advice from a licensed attorney for any legal questions you may have.