Cover 13 Points When Negotiating Garage Leases

If you haven't negotiated a garage lease recently, you may find that there are numerous matters that you must pay particular attention to during negotiations. Unlike most commercial leases, garage leases contain an array of unique issues that are not commonly encountered in a typical leasing transaction, says New Jersey real estate attorney Mark Morfopoulos. “It would be a big mistake to assume a garage lease is ‘just a lease,’” he warns.

To avoid overlooking a key issue, Morfopoulos suggests negotiating the following 13 provisions in your garage lease.

Description of Premises

A description of the premises is an important clause in all leases. It is no less important for a garage lease. Make sure the garage premises include all parking attendant buildings and restroom facilities, if any, constructed within the garage, and all easements, rights, and appurtenances to the land (including abutting and appurtenant sidewalks, driveways, curb-cuts, and alleyways for travel and staging). Also, don't forget to include access to any other common facilities located within the building.

Permitted Uses

As with any lease, there's always the concern that a definition of “Permitted Use” is too expansive and will allow a tenant to use the premises for activities that you either did not contemplate or approve. On the other hand, a tenant desires the flexibility to utilize the space that it leases for as many uses as possible. In a garage lease, make it clear that the premises are to be used for “the parking and storage of passenger motor vehicles only.”

You should not permit non-passenger vehicles to be stored in the garage. Among the many reasons such vehicles should be prohibited is that they weigh more than cars and can damage the facility. Even if the garage could conceivably hold a non-passenger vehicle, doing so can increase capital repair and insurance costs and affect the entire building.

Licenses and Permits

Require the tenant, at its expense, to procure, and at all times maintain and comply with the terms and conditions of all licenses and permits required for the lawful conduct of the permitted uses in the garage. You should also hold the tenant to the same standard as it relates to any driveway or sidewalk crossing permits and advertising and other sign permits.

Practical Pointer: You should agree to cooperate with the tenant in obtaining any required permits, approvals, or certificates necessary to perform any work, provided all the costs are borne by the tenant.

Prior Garage Operations

A tenant may request that you cooperate with it in implementing the transition of the garage's operations from the prior operator to the new tenant, including providing the new tenant with a rent roll and schedule of accounts receivable for the prior garage operations, if available. In the event of any holding over by any prior garage operator beyond the scheduled expiration date of that operator's lease or other occupancy agreement, you should agree to take all commercially reasonable actions to obtain possession of the garage.

Labor Relations

In many office buildings, owners employ contractors or other laborers who are engaged in the construction, maintenance, or operation of the building. You should make sure that the tenant will not employ any contractor or laborer, or permit any materials to be delivered to or used at the building, which will cause a conflict or interfere with those individuals employed by you. The tenant should be able to use its own employees and those of its affiliates as long as those employees do not violate applicable legal requirements or the provisions of any union contract applicable to building employees.

Unavailability

Savvy tenants have inserted a clause in garage leases that provides for the recognition that at some point, if an owner has denied the tenant the right to use a portion of the premises for a certain number of days during the course of a particular 365-day period, the tenant should be compensated for the loss of business. A provision covering such a scenario will include a method for calculating that compensation. For an example of a reasonable provision, see “Model Lease Language: Use Reasonable Formula to Calculate Compensation for Loss of Use.”

Signage

As with most retail operations, the proprietor of a garage will consider any clause relating to signage very carefully. The ability for potential patrons to see the garage owner's sign(s) is a crucial element in determining the success of its business. You should require your approval for all signage. However, be prepared for the tenant to ask that you not unreasonably withhold, delay, or condition your consent. This is a reasonable request.

Some owners have tried to add a provision pertaining to interior signage, but that may be overreaching. Another approach to regulating interior signage could be to state that approval is “deemed granted” if the signage is consistent in quality and design with signage existing at another suitable location—such as within a five-block radius of your garage, or other signage at your property or immediately neighboring properties—as of the date of the lease. The best approach would be for all parties to pre-approve the signage before the lease is signed.

Tenant's Repair and Maintenance

This is a heavily negotiated clause in most leases. In garage leases, especially in areas with colder climates, owners believe that a tenant should acknowledge that the prevention of structural damage to the garage and the building resulting from the accumulation of road salt and similar automobile-borne substances is a significant concern to the owner.

To minimize the presence of such substances within a garage, some owners require the tenant to agree that it will thoroughly wash and flush the floors, ramps, ceilings, and walls of the garage not less frequently than once every six months, and more often if necessary, to prevent structural damage to the garage and the building.

Usually such a clause requires the tenant's operations to be performed in accordance with the quality standards applicable to parking facilities located in first-class office buildings in the location in question. Many leases will also require the tenant to paint the entire garage on or about the end of every third lease year in colors and in the manner subject to the owner's prior approval.

Understanding that concrete is porous and fluids dripping from the vehicles within the garage can damage the facility or be absorbed into the concrete are also important factors in deciding who should be responsible for repair and replacement obligations of the garage structure.

Insurance

The insurance provisions of any lease should be scrutinized carefully. One provision that is typically not in any other type of lease is a clause requiring “garage keepers legal liability insurance” for fire and explosion, automobile theft, riot, civil commotion, malicious mischief, and vandalism.

If you are not sure as to the amount of such coverage that should be required, adding that the limits should be the same as is “customary in similar garages in the City of __________” is one way of handling the issue. Consult your insurance agent for further information with respect to this type of coverage.

Parking Rates

A tenant wants the unfettered right to establish hourly, daily, monthly, and other parking rates and charges for ancillary services provided in the garage. However, you should require the tenant to get your approval first and should stipulate that rates and charges must be consistent with those charged by parking facilities in first-class office buildings in the vicinity of the garage. Also, it is not unreasonable for you to require a tenant to comply with all applicable governmental requirements with respect to parking rates.

Practical Pointer: In addition, some owners ask for limited free parking privileges for themselves and reduced rate accommodations for building tenants.

Other Parking Facilities

If you are a larger owner, you may run your own garage operations nearby. In those cases, it would be wise for you to require the tenant to acknowledge that you, your principals, affiliates, or related parties may currently or in the future own, lease, manage, or operate, or have ownership or other interests in, other parking facilities that may now or in the future compete with the garage without any accountability to the tenant.

Standards of Operation

This is a hot button for many owners, as they believe that tenants should recognize that the reputation and operation of the building as a first-class office building is an extremely valuable asset. The services furnished by the tenant under the lease are and will be identified by the occupants of the building, invitees, and the general public with the owner and the building and are inseparable in the minds of such individuals with the services and reputation of the owner.

Therefore, you should insist that since the tenant's services and personnel—including their demeanor, dress, and/or uniform—are of utmost importance to you, all of tenant's policies should conform to the standards of operation of comparable buildings in the area.

Parking Lifts

A tenant may want to add a clause in the lease that allows it to install vehicle lifts on the premises, provided that such installation is lawful and performed in compliance with all applicable laws, rules, codes, and regulations. As an owner, you probably shouldn't offer this right. Lifts essentially allow the tenant to crowd more cars into the garage, and with more cars (and the actual lift devices), comes more possibility of damage. Also, lifts can be dangerous, and the risk of someone getting injured is much greater than the risk involved with a traditional parking lot.

However, you should understand that the benefits to the tenant can be substantial. Knowing the value of such a right, if you decide to allow the tenant to install the lifts, you should require the tenant to pay a monthly fee to permit it to install and use the lifts.

Insider Source

Mark Morfopoulos, Esq.: Real Estate Attorney, Meislik & Meislik, 66 Park St., Montclair, NJ 07042; (973) 783-3000; mmorfopoulos@meislik.com.

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