Retail Lease Agreement
(Long Form) (CA)

Summary

This template is a retail lease for space in a multi-tenant building. It is intended for use by a non-institutional landlord of a small—to medium-sized building. The template includes practical guidance, drafting notes, alternate clauses, and optional clauses. This template incorporates California law. It is anticipated that tenants will be small businesses and individuals in a building up to approximately 50,000 square feet in size. The initial draft of a lease is usually prepared by the landlord and will reflect a pro-landlord point of view. If the leasing market is landlord-oriented, a landlord may elect to make further revisions to this lease to secure further protection. Similarly, this lease template will require additional modifications to make it pro-tenant. The tenant's suggested provisions are separately titled or included within the landlord's provisions in italics. The tenant's representative can review and consider the suggested tenant language that has been provided, however, review by the tenant's counsel is recommended. In all cases, both the landlord and tenant must have the draft lease reviewed by counsel, as each property has differing issues that cannot be addressed in a single lease template. Retail leases are typically triple net leases, meaning that in addition to base rent, the tenant will pay its proportionate share of maintenance or common area maintenance (CAM), insurance, and taxes. What gets included in the items comprising additional rent may be the subject of negotiation. The landlord will want a broad definition of additional rent, whereas the tenant will seek to limit the costs. Most retail tenants will tell an attorney that in order to operate a retail location successfully, occupancy costs cannot exceed a certain percentage of sales. The theory behind percentage rent is that tenant profitability rises with sales increases at a given location, and to the extent that the profitability is generated by the traffic (foot or automobile) at a particular location, the landlord may want to share in the tenant's success. Typically, percentage rent will consist of a specified percentage of a tenant's sales in excess of a certain amount, called a breakpoint. A natural break point occurs when percentage rent begins when the tenant's sales exceed the base rent divided by the percentage rent factor. For example, if the annual base rent is $50,000 and the percentage rent is 6%, a natural break point occurs when tenant's sales exceed $833,333 ($50,000/.06). For fixed and percentage rent provisions that may be included in a commercial lease, see Fixed and Percentage Rent Clause (Retail Lease)(Pro-Landlord). For further information on commercial leasing, see Industrial Leasing Resource Kit, Office Leasing Resource Kit, Restaurant Leasing Resource Kit, and Retail Leasing Resource Kit. See also Junior Associate Real Estate Resource Kit (Commercial Leasing). For guidance on drafting and negotiating commercial leases, see Industrial Lease Agreements, Office Lease Agreements, Restaurant Lease Agreements, and Retail Lease Agreements.