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Shopping Center Acquisitions - 4 Lease Clauses that Impact Value
Before diving into the purchase of a shopping center, prospective buyers assess the value of the shopping center by considering location, tenant mix and financial strength, competing shopping centers, and the physical condition of the buildings. In addition to these considerations, potential buyers should be aware of four common types of lease provisions that can impact the overall value of the shopping center.
Exclusive Use Provisions. In order to attract a tenant, landlords often grant an exclusive right to sell a particular service or good within the shopping center. It is not uncommon for a landlord to grant exclusive use rights to tenants that conflict with uses that are permitted under then-existing leases or that directly conflict with another exclusive use right. For example, if one tenant is permitted to use its premises for “any lawful purpose,” exclusive rights granted to a second tenant to sell women’s shoes could be violated by the first tenant (even though its current use does not include the sale of women’s shoes). If an actual or potential conflict exists among exclusive use provisions of the shopping center’s leases, the buyer could later become embroiled in expensive litigation with one or more of the tenants. This could lead to the buyer suffering the termination of a lease, lost rental income or liability for damages. In response to use concerns raised by a buyer, a seller may...[read more]
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