What are some of the issues that tenants and landlords might need to compromise on?
Things like escalators, pass-through expenses, term and extension options and guaranty, which may benefit one side or the other. Let me explain. Escalators are most commonly quoted as a flat annual percentage increase (usually 3 percent to 4 percent) or tied to an index such as the Consumer Price Index. Well known retail chains with established credit ratings will typically require escalators to kick in every five years (or longer) rather than annually. Mom-and-pops will almost certainly see annual increases. Pass-through expenses include cam, insurance and taxes. They are typically not negotiable in the base amount, but a savvy tenant can minimize exposure to rising costs by insisting on capping annual increases. Term and extension options will help maintain a going concern, which is always paramount to a retailer. From the viewpoint of a tenant who has a solid business plan, the longer and the more option periods, the better. Shorter terms can expose the retailer to inflationary pres
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