When signing a lease agreement, the devil is often in the details—and those details can have major implications for your business. For restaurant and retail tenants, overlooking hidden risks in lease clauses can lead to financial losses, operational disruptions, and even location closures. Below, we highlight the top five risks buried in lease agreements and provide actionable advice to help you stay protected.
1. Ambiguous CAM Charges and Expense Allocations
The Risk: Common Area Maintenance (CAM) charges are often vaguely defined, giving landlords the freedom to allocate excessive costs to tenants. Items like capital improvements, unrelated repairs, or even administrative fees can be passed on without tenants realizing it.
Example: A multi-unit restaurant operator was shocked to discover they were funding major parking lot upgrades for the entire property—not just their portion of the space.
What to Do: Negotiate a clear definition of CAM charges and request caps on increases. Insist on annual reconciliations and the right to audit these expenses.
2. Unfavorable Renewal Terms
The Risk: Many leases include renewal options that look appealing at first glance but contain terms heavily skewed in favor of the landlord. These terms might include steep rent increases or reduced flexibility to exit the lease.
Example: A retail tenant discovered their renewal included a 15% rent increase and required them to renew for an additional five years, locking them into a space that was underperforming.
What to Do: Negotiate a cap on rent increases during renewals and ensure shorter renewal terms are an option, especially if your business needs flexibility.
3. Co-Tenancy Clauses That Fail to Protect You
The Risk: Co-tenancy clauses are designed to protect tenants if anchor stores or other key businesses vacate a property. However, some co-tenancy clauses lack sufficient tenant remedies, leaving businesses exposed to declining foot traffic without relief.
Example: A fast-casual restaurant saw sales plummet after a neighboring big-box retailer left. The lease’s co-tenancy clause only allowed for a minor rent reduction, which wasn’t enough to offset the lost revenue.
What to Do: Ensure co-tenancy clauses are tied to robust remedies, like lease termination rights or substantial rent abatements, if key anchors leave or vacancies exceed a certain percentage.
4. Vague Maintenance Responsibilities
The Risk: Lease agreements often include unclear language around maintenance responsibilities, leaving tenants liable for unexpected repair costs.
Example: A boutique retailer found themselves on the hook for a $20,000 HVAC replacement because the lease assigned responsibility for “all repairs” to the tenant, without clearly distinguishing between routine maintenance and capital expenditures.
What to Do: Negotiate specific language that delineates tenant and landlord responsibilities for maintenance and repairs. Request that landlords remain responsible for structural repairs and large capital expenditures.
5. Restrictive Use and Exclusivity Clauses
The Risk: Restrictive use clauses can prevent tenants from adapting their business model, while poorly drafted exclusivity clauses fail to protect their competitive advantage.
Example: A coffee shop tenant wanted to expand their menu to include light meals but was blocked by a restrictive use clause. Meanwhile, a lack of exclusivity allowed another coffee shop to open in the same shopping center.
What to Do: Push for flexibility in use clauses to allow for business evolution and ensure exclusivity clauses prevent competitors from opening nearby.
How to Protect Your Business
Navigating lease agreements can feel overwhelming, but proactive measures can save you from long-term risks. Tools like Leasecake’s Cakebot Risk Analyzer can help uncover hidden risks in lease agreements before they become costly problems. With AI-driven insights and custom risk templates, you can assess potential blind spots and negotiate leases that align with your business goals.
Take Control of Your Leases Every lease holds risks. Make sure you know yours. Start analyzing your agreements with tools designed to give you clarity and confidence—so you can focus on growing your business, not fighting surprises in your lease.
