Commercial Leases: Making the Most of Retail Space

By Andrew Glincher Office Managing Partner, Nixon Peabody LLP | October 28, 2008

Most managers are very conscious of maintaining the correct balance for their property. But what are the best techniques for achieving that?

The process starts with consideration of how to create a mix of shops and services that complements the needs of the hotel - to serve its clients and to create an image in the outside world. But they should also complement each other. For example, a large property may want to have more than one clothing retailer, but you would want them to specialize in different types of fashions. You might want to have multiple restaurants, but it might be a problem if more than one served Chinese food.

There are more subtle issues along these lines as well. What if, for example, a hair and nail salon in the hotel starts offering massages - thus competing with the massage services offered by your spa?

The way of dealing with issues like these is during the initial lease negotiations. Property managers should have as much control as possible and should negotiate use clauses that are very precise and try to anticipate future issues that may arise. Obviously, a lease for a retailer should dictate that the space be used only for retail purposes. But it should go further than that.

From the property's point of view, you would want to specify everything from the types of merchandise that will be sold to the types of displays the store contains. A restaurant lease would state the types of food that could be served. A spa or salon lease would include a list of services that would be permitted there.

Just as the management of the hotel is going to want to be as restrictive as possible, the tenant is going to want as much flexibility as possible. A restaurant owner will want the ability to change from a seafood restaurant to a steakhouse if the former is not successful. A high-end retailer will want the ability to offer lower priced merchandise if he finds a demand for that. How far you can go depends on the lease negotiations - how badly do you want that tenant and how badly does the tenant want to be at your location?

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