Considerations for Retail Space in an Office Building

Holland & Knight LLP

Holland & Knight LLP

A successful relationship between an office building owner and retail tenant usually involves educating each party to the particular attributes of the other party's business. For example, a retail tenant typically has little or no appreciation of the following office building concepts that are normally inapplicable to a single story shopping center or mall:

  • Limited availability of parking for employees and customers, usually confined to a parking garage and often involving parking charges. Depending on the relative bargaining positions of the parties, the landlord may need to provide parking validation for up to two hours of parking by tenant's customers.
  • Imposition of hourly charges for use of the building's chilled water loop during non-business hours of the building. Business hours for the retailer are often greater than business hours of the building, particularly in an urban environment where there is direct access between the retail space and the street as opposed to access that is derived through building common areas.
  • Operating expenses that are atypical of a retail project. Again depending on relative bargaining position, the tenant may avoid sharing in expenses that benefit the office tenants but provide no direct benefit to the tenant (e.g., electricity for office space where the retail space is separately metered, janitorial services provided to the office space but not the retail space, maintenance/repairs for building heating, ventilation and air conditioning (HVAC) equipment where the retail space derives HVAC through the retail tenant's separate equipment, etc.).
  • Requirements pertaining to alterations that are unique to office buildings. Office buildings often prohibit certain construction activities (e.g., floor drilling) during business hours in order to avoid complaints of office tenants.

Retail tenants interact with the public and therefore have the ability to impact public perception of the building, both positively and negatively. The building owner's goal is to ensure that customers visiting the building have a positive experience with the retail tenants, thereby positively impacting the desirability of the building's rentable space and generating sales – obviously important if the income stream includes percentage rents from the retail tenants. Below is a model Retail Requirements Rider that will help building owners easily achieve their goals by imposing terms and conditions particular to retail operations. The added benefit of the Retail Requirements Rider is that they'll still be able to use the standard lease form, thereby maintaining uniformity in leasing for all space in the building.

Retail Requirements Rider

  1. Tenant shall only use the Premises for operation of the Required Business (defined as [insert type of business]). Tenant shall open for business in the Premises no later than [insert date] and shall continuously conduct the Required Business in the Premises during the following hours: [insert minimum hours of required operation].
  2. Tenant shall operate the Required Business under the trade name [insert trade name] and in a manner commensurate with the service, dignity and ambiance of similar first-class businesses that are operated in first-class office buildings located in [insert applicable geographic region].
  3. Tenant shall not conduct, maintain or carry on its business in any manner which, in the judgment of Landlord, may harm, or tend to harm the business or the reputation of Landlord or the Building's desirability as a high-quality building for offices of financial, insurance, legal, accounting and similar prestigious institutions, or reflect, or tend to reflect unfavorably on the Building, Landlord or other Tenants or occupants, or which might confuse or mislead, or tend to confuse or mislead the public; and Tenant shall immediately discontinue any such conduct upon written demand of Landlord. Sales, business and/or activities prohibited by the foregoing include, without limitation, the following:

    3.1 the sale of second hand goods, surplus articles, insurance salvage stock, fire sales stock, any other damaged or defective merchandise, liquidation stock, bankruptcy stock or other distress or "end of line" stock;

    3.2 the sale of out-of-style, job lot quality or any inferior merchandise;

    3.3 any auction or bulk sale (other than a bulk sale in conjunction with an assignment or sublease made pursuant to the provisions of this Lease);

    3.4 liquidation sale, bankruptcy sale, "going-out-of-business" sale, "moving" sale or any other similar sale;

    3.5 any other special sale or sales other than such as are incidental to the normal routine of Tenant's business with its regular customers;

    3.6 a pawn shop or any of the services usually offered by a pawn shop;

    3.7 a department store or a store similar thereto;

    3.8 the sale of any X-rated, pornographic, lewd, or so-called "adult" newspaper, book, magazine, film, picture, video tape or video disk.

  4. Tenant shall install and maintain at all times during the Term of the Premises new, first-class trade fixtures, lighting fixtures, equipment, and furniture adequate and appropriate for the Required Business and of no less a quality or quantity than whatever is usual for such type of business, all of which shall be kept in good order and condition. Tenant shall not keep or display any merchandise on or otherwise obstruct any Common Areas or other facilities of the Building, and shall not solicit nor cause to be solicited any business for the Premises in any part of the Building outside the Premises. Tenant shall not install anywhere outside of the Premises any exterior lighting, decorations, transmitter or receivers, fence, aerial or mast or make any change to the store front without prior written consent of Landlord which may be withheld in Landlord's absolute discretion.
  5. Tenant shall not use or permit the use of any coin or token operated vending machine or similar device for the sale of any goods, wares, merchandise, food, beverage, or services, including, but not limited to, pay lockers, pay toilets, scales, amusement devices, and machines for the sale of beverages, foods, candy, cigarettes, or other commodities, except for food and drink vending machines for use solely by Tenant's employees, which, if installed, must be located in Tenant's storage or office area. Tenant shall not permit the use of any portion of the Premises for the sale of lottery tickets or similar items, for solicitations, demonstrations (other than cooking classes or similar demonstrations) or itinerant vending, or for any similar activities.
  6. Tenant shall police any lines that form outside of the Premises to Landlord's reasonable satisfaction to make sure that waiting customers do not impede pedestrian traffic flow or become disorderly.
  7. Tenant acknowledges that Landlord has a strong interest in the Design Elements (defined as finishes, materials, fixtures, equipment, furnishings, decorations and other aesthetic considerations) of the Required Business and how such Design Elements relate to the balance of the Building. All Design Elements shall be set forth in plans and specifications that Tenant shall submit to Landlord for approval in accordance with Exhibit "___" [insert exhibit designation of work letter] of this Lease. There shall be no change in any of the Design Elements at any time during the term of this Lease without Landlord's prior written approval which shall not be unreasonably withheld but may be withheld based on Landlord's determination of aesthetic considerations appropriate for the Building.
  8. Tenant shall, at its expense, procure all governmental licenses and permits required for Tenant's occupancy of the Premises and the conduct of Tenant's business in the Premises and shall at all times comply with the requirements of each such license or permit, and of applicable laws.
  9. Except as set forth immediately below, Tenant shall not use any portion of the Premises for the storage of merchandise or supplies in excess of inventory necessary to keep its business continuously stocked with due regard to seasonal adjustment. Tenant shall not load or unload and shall make all reasonable efforts to prevent the loading or unloading of merchandise, supplies or other property nor ship or receive outside the area and entrance designated therefor by Landlord from time to time. In addition, if the Premises is not located on the ground floor of the Building, Tenant shall not use any elevator of the Building other than the freight elevator servicing the retail portion of the Building for transporting any merchandise, supplies and other property to and from the Premises. If Tenant is located on the ground floor of the Building, all loading, unloading and deliveries to and from the Premises shall be made only through the rear doors of the Premises via the delivery dock in the parking garage, or through such other manner as Landlord shall direct. Tenant shall prevent the parking or standing outside of said area of trucks, trailers, or other vehicles or equipment engaged in such loading or unloading in a manner that, in Landlord's opinion, interferes with the use of any area of the Building including the Common Areas. Deliveries through the Common Areas shall be coordinated with the Building management and only occur at such times as the Building management deems appropriate.
  10. Tenant shall not permit any odor, fume, noise, sound or vibration to be experienced inside the Building. Tenant shall not burn trash; nor shall Tenant store or permit accumulations of any trash, garbage, rubbish or other refuse inside or outside of the Premises except in compactors or other receptacles approved by Landlord. If required by Landlord, Tenant shall at its sole cost and expense contract separately for trash removal services (in which event Landlord shall have the right to approve such contractor, in its reasonable discretion) and, if necessary, to obtain a separate dumpster or other appropriate equipment for trash removal; provided, however, if Tenant is required to contract separately for trash removal services, then (i) Tenant shall maintain its dumpster in a location reasonably selected by Landlord from time to time, and (ii) Tenant shall maintain its dumpster in a neat and sanitary condition and cause the dumpsters to be emptied as often as necessary (but at least daily) to avoid overloading, leakage, spillage, problems with rodents, insects, vermin and other pests, and unsanitary conditions generally.
  11. Tenant shall at all times keep the inside and outside of all plate glass in the doors and windows of the Premises clean. Tenant will not place or maintain any articles or signage of any kind on, against or within three feet of any glass in the doors and windows of the Premises, or in the vestibules or entry of the Premises. Tenant shall be responsible for all damages to and breakage of plate glass of the Premises including the storefront, and Tenant shall carry special form property insurance without deductible on all such plate glass throughout the Lease Term. All such insurance shall otherwise comply with requirements of this Lease pertaining to insurance.
  12. On a monthly basis, or sooner if reasonably deemed necessary by Landlord, Tenant shall, at its sole cost and expense, promptly cause the Premises to be treated for pests by a licensed pest extermination contractor.
  13. If the Required Business consists of a restaurant or other establishment providing food and/or beverages for on-premises consumption, the following additional requirement shall apply:

13.1 Tenant shall (A) maintain a first-class decor and physical layout that is attractive and appealing; (B) serve and sell food of a high quality; and (C) maintain a high standard of cleanliness and hygiene throughout the Premises consistent with the first-class standards of cleanliness, hygiene and good appearance of the retail areas of the Building. Tenant agrees that it shall always stress the "first-class restaurant" aspect of its business, and that no other use of the Premises by Tenant shall ever take precedence over the first-class restaurant use.

13.2 Tenant shall not be entitled to sell such alcoholic beverages for off-premises consumption. Tenant shall indemnify and hold Landlord harmless from and against any and all claims arising from Tenant's sale of alcoholic beverages, and shall carry liquor liability insurance, in the minimum amount of Five Million Dollars ($5,000,000.00) per occurrence and otherwise reasonably satisfactory in form and content to Landlord, covering any liability that may arise from such sales.

13.3 Tenant agrees to maintain in good working order and repair the kitchen and dishwasher exhaust ducts for the Premises. Tenant shall deliver to Landlord, within thirty (30) days after the Commencement Date, all warranty and maintenance booklets/information regarding the kitchen and dishwasher exhaust systems installed in, or servicing, the Premises. Tenant shall employ a contractor, approved by Landlord, to undertake the complete cleaning of: (A) the exhaust duct within the Premises, the roof exhaust fan unit and the vertical vent stack leading to such fan unit, on at least a quarterly basis; and (B) the kitchen hoods, including replacement of the filters, on a weekly basis, and the maintenance of any cleaning or self-cleaning mechanism. At Landlord's request, Tenant shall furnish Landlord with copies of all paid invoices evidencing that such work has been undertaken by Tenant. The frequency of cleaning shall be increased upon ten (10) days' prior written notice from Landlord if Landlord's chief engineer reasonably determines that the same is necessary. Tenant shall be responsible for all repairs and replacements of all exhaust equipment within its Premises and also for the roof exhaust fan unit.

13.4 Tenant acknowledges that a grease trap is required to properly serve the Premises, and Tenant agrees to provide (in connection with Tenant's Work) and maintain a grease trap system as reasonably required by Landlord to prevent any clogging or maintenance problem with the Building's plumbing system. Tenant shall deliver to Landlord, within thirty (30) days after the Commencement Date, all warranty and maintenance booklets/information regarding the grease trap system in the Premises. Tenant shall maintain in good working order the Building's plumbing lines connected to the Premises by contracting for monthly cleaning of Tenant's grease trap and all the Building plumbing lines connected to the Premises. In cleaning Tenant's grease trap, removing all grease therefrom and hauling away such grease from the Premises, Tenant's contractor shall place the grease so removed in separate sanitary containers and dispose of same in accordance with all applicable laws and regulations. The frequency of cleaning shall be increased upon ten (10) days' prior written notice from Landlord if the Building manager reasonably determines that the same is necessary. Tenant shall be responsible for and shall indemnify Landlord against, any and all damages, costs or expenses caused by Tenant's operation of the Restaurant within the Premises, including but not limited to leaks and plumbing backups caused thereby or resulting therefrom.

13.5 Within thirty (30) days after the Commencement Date, Tenant shall deliver to Landlord all warranty and maintenance booklets/information regarding (A) the walk-in refrigerator and all other refrigeration equipment in the Premises; and (B) all HVAC equipment in, or servicing, the Premises.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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