RETAIL LEASE AGREEMENT DRAFTING PROMPT

Document Overview and Purpose

You are tasked with drafting a comprehensive Retail Lease Agreement for commercial leasing purposes. This transactional document will govern the relationship between a landlord and tenant for retail space within a shopping center or commercial property. The agreement must balance the interests of both parties while addressing the unique operational requirements of retail businesses, including percentage rent structures, continuous operation obligations, and common area maintenance responsibilities.

Essential Lease Information

Begin by establishing the foundational elements of the lease relationship. Identify the complete legal names and addresses of both the Landlord and Tenant, ensuring proper entity designation (individual, corporation, LLC, partnership, etc.). Describe the Premises with precision, including the unit number, street address, shopping center name if applicable, and the approximate square footage. Specify whether measurements are based on usable square footage or gross leasable area, and note any common areas included in the leased space such as storage rooms, restrooms, or back-of-house facilities.

Define the Lease Term with clarity, stating the commencement date and expiration date. If the commencement is contingent upon substantial completion of tenant improvements or delivery of possession, articulate these conditions explicitly. Address whether the term begins upon lease execution, delivery of possession, or opening for business. Include any rent abatement periods during construction or initial setup, specifying whether such periods extend the overall term or are included within it.

Establish the Base Rent or Minimum Annual Rent amount, stating whether it is fixed throughout the term or subject to scheduled increases. If the rent includes escalations, specify whether these are fixed percentage increases, Consumer Price Index adjustments, or fair market value resets at designated intervals. Clarify the payment schedule, due date each month, acceptable payment methods, and the address or account for rent remittance.

Additional Rent and Operating Expenses

Draft comprehensive provisions addressing Percentage Rent obligations that are characteristic of retail leasing. Specify the percentage rate to be applied to Gross Sales and establish the annual breakpoint or natural breakpoint above which percentage rent becomes due. Clarify whether percentage rent is calculated monthly, quarterly, or annually, and establish reporting and payment deadlines. Address whether the breakpoint is cumulative throughout the lease term or resets annually.

Define Gross Sales with precision to avoid future disputes. The definition should encompass all revenues, receipts, and income of every kind derived from business conducted in, on, or from the Premises, regardless of whether such sales are for cash, credit, or otherwise. Specify inclusions such as online sales fulfilled from the Premises, gift card redemptions, and sales from vending machines or kiosks. Equally important, enumerate permitted exclusions, which typically include returns and refunds, sales taxes collected and remitted to governmental authorities, sales to employees at discount (up to a reasonable cap), and insurance proceeds for damaged or stolen merchandise. Require the Tenant to maintain complete and accurate books and records, grant the Landlord audit rights with reasonable notice, and mandate annual sales reporting certified by the Tenant's authorized representative.

Address Common Area Maintenance charges by establishing the Tenant's proportionate share, typically calculated as the ratio of the Premises square footage to the total gross leasable area of the shopping center. Define CAM expenses to include maintenance, repair, and replacement of common areas such as parking lots, walkways, landscaping, lighting, security services, and management fees. Specify any caps on CAM increases or exclusions for capital improvements with useful lives exceeding one year. Establish the reconciliation process, requiring the Landlord to provide annual statements with supporting documentation and allowing the Tenant audit rights.

Similarly, allocate responsibility for real estate taxes and property insurance on a proportionate share basis. Clarify whether tax obligations include assessments, special assessments, and personal property taxes on common area equipment. For insurance, specify that the Landlord will maintain property insurance on the building and common areas, with costs passed through to tenants, while the Tenant remains responsible for its own liability insurance and contents coverage.

Use Provisions and Operational Requirements

Define the Permitted Use with specificity to protect both parties' interests. Rather than broad categories, describe the exact nature of the retail business, including the types of products or services to be sold and the trade name under which the Tenant will operate. This precision prevents conflicts with other tenants' exclusive use rights and ensures the tenant mix aligns with the shopping center's character and market positioning.

Impose Continuous Operation obligations requiring the Tenant to operate its business throughout the entire Premises during all days and hours that the shopping center is open to the public. Address consequences for dark store situations, including potential percentage rent adjustments, landlord's right to terminate, or stipulated damages. Include reasonable exceptions for force majeure events, casualty damage during restoration, or temporary closures for remodeling with landlord approval. Recognize that continuous operation protects the shopping center's viability by maintaining customer traffic and preventing dead spaces that diminish the overall retail environment.

Establish Signage standards requiring Landlord's prior written approval for all exterior signs, window displays visible from common areas, and any illuminated signage. Reference compliance with the shopping center's signage criteria, local zoning ordinances, and any applicable design guidelines. Specify that the Tenant bears all costs for sign fabrication, installation, maintenance, and removal upon lease termination, and must maintain signs in first-class condition throughout the term.

If applicable, require participation in the shopping center's Merchants' Association, including payment of dues and assessments for joint marketing, promotional events, and common area decorations. Specify the initial dues amount and the mechanism for adjustments, typically tied to the association's annual budget approved by its membership.

Premises Condition and Improvements

Describe the condition in which the Landlord will deliver the Premises to the Tenant. Common delivery conditions include "as-is" where the Tenant accepts the space in its current condition, "broom clean" requiring the Landlord to remove debris and prior tenant's property, or "vanilla box" or "white box" providing a basic finished space with walls, ceiling, flooring, HVAC, electrical, and plumbing stubbed to the Premises but without tenant-specific finishes.

Address Tenant Improvements comprehensively, establishing the approval process for construction plans and specifications. Require the Tenant to engage licensed and insured contractors, obtain all necessary permits, and complete work in accordance with applicable building codes and ADA requirements. If the Landlord provides a Tenant Improvement Allowance, specify the dollar amount per square foot or total allowance, eligible costs that may be reimbursed (typically hard construction costs, but potentially including architectural fees, permits, and project management), the disbursement process requiring submission of lien waivers and paid invoices, and any deadline by which the allowance must be utilized or it expires.

Establish construction timelines, requiring the Tenant to complete improvements and open for business within a specified period after lease execution or delivery of possession. Address the consequences of delays, distinguishing between excusable delays due to force majeure or Landlord-caused delays versus unexcused delays that might trigger lease termination rights or liquidated damages.

Protective Clauses and Special Provisions

If negotiated, include an Exclusive Use Clause prohibiting the Landlord from leasing other space in the shopping center to tenants whose primary business competes directly with the Tenant's permitted use. Define the scope of the exclusivity with precision, specifying the protected product categories or services. Address whether the exclusivity applies to the entire shopping center or only to inline tenants, potentially excluding anchor tenants or pad sites. Include reasonable carve-outs for existing tenants, tenants in occupancy as of the lease date, or de minimis sales of competing products that are ancillary to another tenant's primary business.

Consider including a Radius Restriction preventing the Tenant from operating a competing business within a specified geographic area surrounding the shopping center. Define the restricted radius (commonly ranging from one to five miles depending on market conditions and tenant bargaining power), the duration of the restriction (typically coterminous with the lease term, potentially extending beyond for some period), and whether the restriction applies to all locations or only those under the same trade name or ownership structure.

Draft comprehensive Default and Remedies provisions addressing both monetary and non-monetary defaults. For monetary defaults, provide a grace period (typically five to ten days) after written notice before default is deemed to occur. For non-monetary defaults, allow a reasonable cure period (typically thirty days, or longer if the default cannot reasonably be cured within thirty days provided the Tenant commences cure promptly and diligently pursues it to completion). Enumerate Landlord's remedies upon default, including termination of the lease, re-entry and repossession, reletting on Tenant's account, and recovery of damages including unpaid rent, costs of reletting, tenant improvement amortization, and the present value of rent for the remainder of the term less amounts actually received from reletting. Ensure remedies comply with applicable state law and do not constitute unenforceable penalties.

Include standard commercial lease provisions addressing assignment and subletting (typically requiring Landlord's consent, which may be conditioned on reasonable criteria), maintenance and repair obligations (generally Tenant responsible for the interior and Landlord for structural elements and common areas), insurance requirements (specifying minimum coverage amounts for commercial general liability, property insurance, and potentially business interruption coverage), indemnification (mutual indemnification for claims arising from each party's negligence or willful misconduct), casualty and condemnation (addressing restoration obligations and termination rights), subordination and attornment, estoppel certificates, and dispute resolution mechanisms.

Execution and Formalities

Conclude with properly formatted signature blocks identifying each party's authorized signatory, title, and date of execution. For entity parties, ensure signatures are executed by authorized representatives with appropriate corporate authority. Include acknowledgment language if the lease will be recorded or if state law requires notarization for commercial leases. Provide spaces for witness signatures if required by local law or if the lease term exceeds the statutory period requiring witnesses.

The completed Retail Lease Agreement should be a balanced, comprehensive document that clearly articulates the rights and obligations of both parties while addressing the unique operational and financial aspects of retail leasing in a shopping center environment.