Get Control Over Tenant's Right to Amenities
Q: Most tenants at my property require certain amenities and they won’t sign leases for space there if they don’t get them. But I’ve heard of circumstances under which office building and retail property owners have had to get rid of amenities. How can I carve out a right to eliminate amenities in the future if it becomes necessary?
A: Many leases say only that you can “limit” amenities, such as parking spaces, after the lease term begins. If you try to recoup them later, the tenant could argue that placing a limit on amenities doesn’t give you the right to eliminate them completely. A limit entitles you only to restrict something, not to get rid of it.
When drafting your lease, also consider whether you may at some point in the future need to deny your tenant certain amenities—such as the right to use a portion of its parking spaces—temporarily, rather than limiting or eliminating them. If you suggest including a lease provision that gives you the right to do this, be prepared for the tenant to push back. It could claim that you should compensate it for any lost business it suffers. The tenant’s fear that temporarily taking away its amenities, especially parking spots, will discourage its customers is rational, so you should include lease provisions that compensate it for reasonable losses.
Clarify Elimination in Lease
Don’t leave room for debate if you want or need to take back amenities or parking spaces from a tenant for your own use. If you want the right to get rid of a tenant’s amenities entirely, say in the lease that you can “eliminate” them. For example, get the right to “eliminate and/or limit the number of the employee parking spaces to be provided” to the tenant.
Calculate Compensation for Temporary Loss
It’s common for a knowledgeable tenant to negotiate a clause in its lease that protects it from a temporary loss of amenities. After all, the tenant is paying rent that includes these things. In addition to paying rent for services that are unavailable to it, the tenant could be losing money if it depends on those amenities to run its business.
The tenant most likely will try to negotiate provisions that recognize that at some point, if you’ve denied the tenant the right to use a portion of the premises for a certain number of days during the course of a particular period—like a full calendar year—it should be compensated for the loss of business. A provision covering such a scenario should include a method for calculating that compensation, like the one in our Model Lease Language below. While you may want to give in to this reasonable request, make sure that the method is fair to you, not just the tenant.
Model Lease Language
a. Unavailability. For the purposes of this Section, a parking space or spaces in the Premises shall be deemed to have been made unavailable by Landlord if Tenant is unable to use such space or spaces for the ordinary conduct of Tenant’s business due solely to Landlord’s performance of repairs, alterations, or improvements to the spaces or the Premises, or Landlord’s breach of an obligation under this Lease to provide services, perform repairs, or comply with Legal Requirements, in each case other than as a result of the negligence or misconduct of Tenant, Tenant’s agents, or Tenant’s customers; delays caused by Tenant; or Unavoidable Delays.
b. Definitions. For purposes of this Section:
(i) “Space Day” means one day’s use of a parking space in the Premises which Landlord shall have made unavailable as provided in Section (a).
(ii) “Threshold Amount” means, for any Lease Year during the Term, [insert #, e.g., 100] Space Days.
(iii) “Capacity” means the licensed capacity of the Premises for the parking of motor vehicles from time to time, in accordance with applicable Legal Requirements.
(iv) “Credit Amount” means, with respect to any Space Day: (a) the annual Fixed Rent payable by Tenant for such Lease Year, divided by 365, multiplied by (b) one hundred twenty-five percent (125 percent), divided by (c) the Capacity.
c. Exceeding Threshold Amount. Notwithstanding anything to the contrary contained in any other provision of this Lease, for each Space Day in excess of the Threshold Amount occurring in any Lease Year during the Term, Tenant shall be entitled to apply, as a credit against future installments of Fixed Rent and Additional Rent payable by Tenant under this Lease, an amount equal to the number of Space Days in excess of the Threshold Amount, multiplied by the Credit Amounts applicable to such Space Days.
d. Example. By way of example only, if during the second Lease Year the Threshold Amount shall have been 100 Space Days, there shall have been 120 Space Days, and the Capacity were 160, then Tenant would be entitled to a credit against Fixed Rent in an amount equal to:
(i) Fixed Rental Amount ($386,250.00) divided by 365 = $1,058.22;
(ii) multiplied by number of Space Days over Threshold Amount (20 Space Days) = $21,164.38;
(iii) multiplied by 125% = $26,455.48;
(iv) divided by 160 (the Capacity) = $165.35