You really never know what you are going to find in a lease when you are doing acquisitions. About three years ago, we did two shopping center acquisitions in the Southeast for one of our institutional clients from a local developer. In one restaurant lease in each of the centers, the developer had negotiated a specific clause – “During the term of the lease, Landlord shall be entitled to one special (including a drink) each week.” The developer had others centers not being sold. I can only imagine that there were similar clauses at each of the other centers to cover the developer’s meals during property visits.
Yes. It’s kind of funny. But, as someone who loves to address the cash flow and value impact of lease language, this somewhat silly clause had real value. Imagine – with a drink, each special (yes, I did look up the menus!) had a value of about $10 per week. Multiplied by 52, it was worth about $520 per year. At a 7.5% cap, that is actually about $7,000 in value. From a nonsense clause!!!!
So, what does Sloth from the Goonies have to do with any of this? You remember the scene from the Goonies where Chunk is tied up in the basement? All of the sudden, Sloth smells chocolate and starts saying “Chocolate? Chocolate! Ruth! Ruth! Baby! Ruth!” It had to be a Sloth-like person who came up with this language –
“Tenant shall not be responsible for the payment of Minimum Monthly Rent or Additional Rent until January 1, 2012. In lieu of said rent, Tenant will credit Landlord Three Thousand Seen Hundred Fifty and 00/100 Dollars ($3,750.00) per month in chocolate products selected by Landlord at Tenant’s retail price from the Commencement Date until January 1, 2012.”
Who else would have negotiated such a great clause? And, the tenant did open in September – so more than 11,000 in chocolate.
While not all leases have the personality of these – offering you a meal and dessert – there is value hidden in every lease!