At the 2025 NRTA Conference, Doug Stevens, Esq. hosted a session focusing on the basics of a commercial lease. A sought-after session for those newer to the industry looking to gain a strong foothold and for the seasoned veterans brushing up on their foundational understandings, Members asked for more knowledge from Doug after the conference.
We sat down with Doug to ask him a few follow-up questions from his presentation…
NRTA: When negotiating the permitted use clause, what are the biggest risks tenants overlook when they agree to language that is either too narrow or tied to a specific brand or concept?
Doug: There are two items I would recommend keeping in mind when negotiating language in the permitted use clause:
- Remember that use tied to your tradename effectively eliminates your exit strategy. No one else can operate under your own tradename.
- Don’t draft a use clause for your business today, draft for where your business may go. Requesting changes from a Landlord down the road can be difficult and costly.
NRTA: How should tenants practically evaluate CAM, operating costs, and additional rent categories to avoid unexpected cost escalation over the life of the lease?
Doug: Take these steps when evaluating CAM, operating, costs, and additional rent categories to forecast the future for your business within the life of a lease:
- Work with brokers to get market standards as you calculate initial estimates.
- Incorporate initial year caps and ongoing non-cummulative caps.
- Determine if the Landlord utilizes related entities to perform or manage maintenance.
- Place a clear limit on administrative expenses as a percentage of total costs.
NRTA: In mixed use or shopping center environments, what strategies do tenants use to successfully negotiate exclusive use protections without stalling the deal?
Doug: You’ll need to analyze exclusive language through a customer loss risk lens (a.k.a. does the customer have an easy alternative option to purchase your products).
- How many alternative options to your business could find space in the center?
- Think of both menu items and customer channel alternatives. For example, a drive through with similar offerings is a more attractive alternative than a walk-in store.
- Balance specific protections (narrow categories rather than general descriptions) against distance to alternatives.
- Tighten restrictions on your building and the adjoining parcels.
- Loosen restriction on tenant space located on the opposite side of a large center.
NRTA: From a tenant perspective, what red flags should trigger deeper scrutiny around assignment and sublease consent standards, especially in long term leases?
Doug:
- Do you have “Permitted Transfers” (where no approval is required)? You don’t want to give a landlord the ability to hold up certain transactions involving your entire portfolio (such as mergers and acquisitions, or internal changes in ownership).
- Landlord’s level of discretion.
- “Approval shall not be unreasonably withheld, delayed or conditioned” is workable.
- “In Landlord’s sole discretion” effectively cedes control of a transfer to the Landlord.
- Timelines – require the Landlord to make a decision in a set period of time (i.e., 14 days) or the transfer is deemed approved. Otherwise, a
- Landlord can delay their approval and kill a deal.
- Number of factors that must be satisfied or left for the Landlord’s evaluation.
- Administrative burden – type, quantity, and confidential nature of information requested by the Landlord.
NRTA: How often do issues around delivery date, commencement date, and rent commencement date actually cause disputes, and what drafting best practices help prevent them?
Doug: Disputes have increased in recent years due to supply chain issues and rising costs.
Tenants seek tight timelines as each day you are not open and operating, you are losing revenue. Consider reasonable delay-in-delivery liquidated damages based on the projected loss. Include language that permits a rent offset for the damages so that the tenant has more control over recovery.
Landlords frequently use force majeure as a defense. Force Majeure should be clearly defined to include only those events that are impossible to predict or control. Delays due to government permitting should NOT be included in the definition of Force Majeure. Also, require parties to give notice of a Force Majeure event contemporaneously with the event. Claiming Force Majeure two years after an event should not be allowed.
Also, if you expect timely performance by a landlord, the landlord may expect similar obligations from the tenant. This makes sense if both parties want to, and can, move forward quickly. Realize that economic winds may shift over time and your goals today may not be the same in 2-3 years. You don’t want a requirement to build a store if your business no longer wants or needs the store.
NRTA: Is there anything else you’d like to share about the basics of a commercial lease?
Doug: I regularly say to think of your lease like a loan document. It represents a long term commitment to pay rent and operational expenses. It can also require a large sum of money to exit the agreement. As you increase the size of your store portfolio, you are increasing the “debt service” obligation. Consider each lease from a portfolio perspective.
Continue the Conversation
We deeply appreciate the valuable contributions of industry professionals such as Doug and other Session Speakers at our annual conference. Their dedication to sharing expertise is a cornerstone of our efforts at the NRTA, not only by presenting at the conference but also through ongoing educational initiatives and follow-up pieces published throughout the year. This continuous sharing of knowledge is vital to elevating the standards and understanding within our entire industry, providing essential year-round education for all members and stakeholders.
Do you have a question for Doug about this topic or an idea for a future educational blog? Contact us today!