Note: Blackacre LLP is a boutique fixed fee real estate law firm with a restaurant leasing specialty. From its experience serving as counsel to numerous restaurant clients, Blackacre’s attorneys know that a good lease is crucial to a restaurant’s success, while a bad lease can doom an otherwise successful restaurant to failure. In the coming articles, Blackacre’s attorneys will write on how to prevent a restaurant lease from becoming the next “Leasing Nightmare." Here is a previous article.
For the month of Halloween, it seems only appropriate to write about the legal issue which most often crosses our desks with respect to our restaurant clients. In our legal practice, when restaurant clients approach us to seek advice regarding a problem with their lease, there is no issue which comes up more frequently than landlord interference with the premises or surrounding common areas.
Whether the issue involves a landlord requesting a tenant to shut down its restaurant to perform maintenance and repairs during a busy holiday weekend, placing scaffolding and conducting construction work in a manner that inhibits pedestrian access and parking for months on end, replacing signage or awnings on the façade of the shopping center or constructing a new store blocking the visibility of the premises, clients approach us with the same question stated in numerous exasperated ways: My landlord can’t do that, right? Unfortunately, if you signed your landlord’s lease form without the assistance of a skilled attorney, the answer is almost certainly: Wrong. Almost any lease form provided by a landlord will provide extremely broad and unfettered authority to both change and/or renovate the shopping center and perform repairs and maintenance within and/or around the premises and shopping center.
To prevent or at least mitigate this Leasing Nightmare, it is important to negotiate provisions in the lease which provide adequate protections in the event of maintenance, repairs and renovations of the shopping center and premises.
Why Landlords Require Broad Authority For Maintenance, Repair and Renovation
In order to understand how to negotiate protections with a landlord, as always, it is first important to understand why landlords grant themselves broad authority to perform maintenance, repairs and renovations in a shopping center.
Landlords grant themselves broad authority to maintain and repair the premises for several reasons. First, landlords want the ability to enter the premises quickly because failure to quickly maintain certain building systems within the premises could result in severe collateral damage. Second, landlords will face liability from other tenants if they are not able to enter a premises to make repairs which adversely affect another tenant. Finally, landlords are often managing shopping centers with tens if not hundreds of tenants and it can become extremely administratively burdensome to have to jump over a bunch of red tape every time entry into a tenant’s premises is required.
Additionally, Landlords need broad renovation rights over a shopping center for obvious reasons. While a shopping center’s improvements and common areas may be appropriate for today (whether operationally or aesthetically), those same improvements and common areas may become inadequate or dated at some point in the future. As Amazon continues to drive a fundamental transformation of the entire retail industry, retail landlords are especially weary of taking on any constraints which limit their rights to modify and upgrade their properties.
Inside the Premises
For the reasons stated above, a landlord’s entry into the premises will be an inevitable part of any shopping center tenancy. Accordingly, the question is not whether or not landlord should be able to enter, but how a tenant can protect itself regarding such entry. The following are protections which should be considered for all shopping center leases:
- Landlord entry should only be permissible upon 24 or 48 hours’ prior written notice, except in the event of an emergency.
- Landlords should use reasonable efforts to minimize interference to the greatest extent possible in connection with entry.
- Landlords should not enter the premises during a restaurant’s peak breakfast, lunch and/or dinner hours and should work during non-business hours if at all possible.
- If the premises cannot be used during the entry, rent should be abated during the period of closure or disruption.
Additional protections based upon the specific shopping center or needs of the restaurant business should also be considered. When our clients approach us with landlord entry issues, having any or all of the above-referenced protections make a significant difference in negotiating a workable landlord entry plan, and without these protections, it is extremely difficult to convince the landlord to take any more sensible course of action other than the cheapest and most convenient one.
Landlords can also cause both temporary and permanent disruptions to their restaurant tenants when renovating, reconfiguring or performing other significant improvements to a shopping center. Devastating effects to a business can occur if and when patrons choose not to jump over an obstacle course of scaffolding and construction barriers or run a marathon from a distant temporary parking lot in order to patronize a restaurant. This Leasing Nightmare often leads to significant adverse impacts to a restaurant’s business, often resulting in litigation and the closing of an otherwise successful restaurant. Accordingly, the following are the key areas which must be addressed in a restaurant’s lease:
Parking: The landlord should covenant to take no adverse action with respect to parking or reduce parking below code requirements. Tenants should also consider specifying a key “protected” part of the parking area which landlords cannot change.
Access: The landlord should covenant to take no adverse action with respect to access to the premises. A confusing treasure hunt to find the restaurant may lead to significant customer losses.
Visibility/Signage: The landlord should covenant to take no adverse action to reduce the visibility or signage of the premises. Placing any kind of permanent or temporary barriers blocking the view of restaurant signage can also result in significant customer losses.
As mentioned in our previous article regarding exclusive uses, there are compelling reasons for having an affirmative remedy for this type of landlord violation, in addition to the more general remedies typically available for a landlord default. For example, tenants should consider asking for the ability to abate 50 percent of base rent while the disruptive condition persists, plus an option to terminate if the condition persists for more than a certain specified time period (often 12 months). Without an affirmative remedy, many landlords will not be concerned with violating these restrictions, as they know a restaurant will have to make a substantial investment toward litigation in order to obtain an adequate remedy – which is obviously not a cost that many restaurant tenants are willing and able to afford. Accordingly, it is absolutely crucial for a tenant to be within its rights to pay reduced rent until these disruptive activities are fixed.
With respect to landlord-tenant relations in shopping centers, parking, access, visibility and the ability to peaceably enjoy the premises are necessary ingredients to a successful tenancy. There is nothing more disappointing than when a potential client – who signed a landlord lease form without the benefit of attorney – asks about a devastating disruption to its restaurant business from shopping center repairs or renovations, and we have to tell them that there is nothing we can do. In our view, this particular Leasing Nightmare continues to plague tenants more than any other leasing issue, and it is absolutely crucial to consult with an attorney to confirm that the restaurant business receives the proper protections from inevitable landlord disruptions. While landlord disruptions are an inevitable part of shopping center tenancy, leasing protections can ensure that such disruptions are made in a manner involving the least collateral damage to the restaurant.