Scrutinizing lease clauses for retail stores is more important than ever now that cannabis dispensaries, gyms, online showrooms, medical offices and the like are such a critical part of tenant mixes, said Jim Terrell, a Senior Managing Director at A&G Real Estate Partners (AGREP), during a master class on retail lease negotiations at Boston University.
“Older leases, in particular, often contain clauses that ban precisely those users that were widely seen as verboten 20 years or so ago,” Terrell said. “You can’t just gloss over the contents of a lease and defer these clauses to your attorneys. You have to take control of the conversation.”
The class was an inside look into the top priorities of retailers and landlords at the negotiating table. BU instructor Rob Nahigian—a Principal with Newton, Mass.-based Auburndale Realty Co. and a 40-year veteran of commercial and industrial real estate—invited Terrell and two industry colleagues to speak to the semester’s commercial lease analysis class on March 3rd for “retail night.”
Based in AGREP’s Chicago office, Terrell helps retailers maximize the value and efficiency of their real estate portfolios, often negotiating or renegotiating leases on their behalf. With more than 40 years in the business, Terrell previously served as VP and COO of real estate for Sears Holdings and SVP of Real Estate for Ashley Furniture.
During the class, he offered insights into the top priorities of retailers during lease negotiations. His colleagues Paul A. DiGeronimo, President of Geronimo Properties, and Ronald H. Golub, owner of The Stonewood Cos., provided the developer perspective.
The professional real estate students who attended hailed from the likes of CBRE, National Development, CoStar, State Street Corp., the RMR Group, Siemens and Boston Capital. “We talked to them about our general philosophies of how to approach lease negotiations, down to the specific clauses and issues that are critical for each side,” Terrell related.
Regarding exclusives clauses, one anecdote that resonated with the class was about a farsighted general merchandise retailer that, in the 1960s, introduced a long-term lease clause that prevented co-tenancy with electronics stores or sellers of future advanced tech. “As Ron Golub related during the class, no one on the landlord side thought about that clause until it was too late,” Terrell said. “It came back to bite the landlord by substantially reducing options to lease to strong operators with a tech or electronics focus.”
All told, Terrell and his colleagues covered 10 different major concepts in retail leasing, including radius restrictions, rent escalations, continuous operations, percentage rent, access/parking and options and renewals. “Our discussion of Force Majeure, or so-called ‘Act of God’ clauses, now seems particularly relevant,” Terrell said. “A huge issue for the industry moving forward will be whether the pandemic—under Force Majeure—actually qualifies as the type of event that relieves retail tenants from their lease duties.”
Terrell said he was impressed by the professionalism and enthusiasm of the students during the early March event. “Even though we went from 5:45 p.m. to past 9 o’clock, the students stayed thoroughly engaged the entire time. They asked highly specific, intelligent questions and provided great feedback afterward. It was a delightful experience.”
