Malls · Retail leases · Shopping Center · Uncategorized

Excluded Areas – Premises vs. Occupants

There is a subtle difference in prorate share definitions that you might miss if you are not looking for it. But, believe me, sophisticated national and regional tenants are looking for it.

In defining excluded areas, a lease will often read:

“the tenant will pays its prorate share of the charges based upon the gross leasable area of the center excluding premises greater than 15,000 sf…”

Others may read:

“the tenant will pays its prorate share of the charges based upon the gross leasable area of the center excluding occupants (or tenants) greater than 15,000 sf…”

When you are setting up your reconciliations in your property management system, you focus on “15,000.” Both include the 15,000. However, one is “premises” and the other is “occupant” (or tenant).

When the language reads “premises,” it does not matter whether the premises is occupied or vacant. The space itself is the excluded area. When the language reads “occupant” (or tenant), it is an excluded area only when that space is occupied.

You may think to yourself that it does not matter in your leases because your standard lease requires the tenants to pay based upon leased an occupied area rather than leasable area – so if the space is not excludable as a premises, it is excluded as a vacancy, and that may very well be the case. However, if any tenants have negotiated minimum occupancies, your exclusion of the space as a vacancy may be limited.

Bottom line – make sure your leases read “excluding premises greater than xx,xxx sf.” You will save yourself a tremendous amount of aggravation (and cash flow)!

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