Negotiating Garage Leases in the Big City

  • Published: April 26, 2009
  • By Mark Morfopoulos

So you think you know everything about leasing. Well, if you have never (or only occasionally) negotiated a garage lease, you may find that there are numerous matters that a practitioner must pay particular attention to when reviewing such a document that are not commonly encountered in a typical leasing transaction. This article will focus on several of the key issues which seem to crop up over and over again when a garage lease is negotiated.

Demised Premises. Of course, a description of the demised premises is an important clause in all leases. It is no less important for a garage lease. A tenant should make sure the garage premises include all parking attendant buildings and restroom facilities, if any, constructed within the garage, and all easements, rights and appurtenances to the land (including abutting and appurtenant sidewalks, driveways, curb-cuts and alleyways for travel and staging) and access to any other common facilities located within building.

Permitted Uses. As with any lease, a landlord is concerned that a definition of “Permitted Use” which is too expansive will allow a tenant to use the demised premises for activities that the landlord either did not contemplate or approve. On the other hand, a tenant desires the flexibility to utilize the space that it leases for as many uses as possible. In a garage leasing environment, a landlord will want to make it clear that the demised premises are to be used for “the parking and storage of passenger motor vehicles only.” A landlord should not permit non-passenger vehicles to be stored in the garage. Among the many reasons such vehicles should be prohibited is that they weigh more than cars and can damage the facility. Even if the garage could conceivably hold a non-passenger vehicle, doing so can increase capital repair and insurance costs and affect the entire building.

Licenses and Permits. Tenant, at its expense, should procure and at all times maintain and comply with the terms and conditions of all licenses and permits required for the lawful conduct of the permitted uses in the garage, including any driveway or sidewalk crossing permits and advertising and other sign permits, but not including the certificate of occupancy for the building (that should be the landlord’s responsibility since it owns the building). Upon request of tenant, landlord should agree to cooperate with tenant in obtaining any required permits, approvals or certificates and performing any work relating thereto provided all costs are borne by tenant.

Prior Garage Operations. There are many issues associated with this topic that can be discussed, but one reasonable tenant request is for a landlord to use commercially reasonable efforts to cooperate with tenant in implementing the transition of the garage’s operations from the prior operator to tenant, including providing tenant a rent roll and schedule of accounts receivable for the prior garage operations, if available to landlord. In the event of any holding over by any prior garage operator beyond the scheduled expiration date of such operator’s lease or other occupancy agreement, landlord should agree to take all commercially reasonable actions to obtain possession of the garage.

Labor Relations. In many office buildings the owner will employ contractors or other laborers who are engaged in the construction, maintenance or operation of the building. A landlord should make sure that tenant will not employ at the building any contractor or laborer, or permit any materials to be delivered to or used at the building which will cause a conflict or interfere with those individuals employed by landlord. Tenant should be able to use its own employees and those of its affiliates so long as such employees do not violate applicable legal requirements or the provisions of any union contract applicable to building employees.

Unavailability. Savvy tenants have inserted a clause in garage leases that provides for the recognition that at some point, if a landlord has denied a tenant the right to use a portion of the demised premises for a certain number of days during the course of a particular 365 day period, a tenant should be compensated for the loss of business associated therewith. A sample provision covering such a scenario is as follows:

  1. For the purposes of this Section __ , a parking space or spaces in the Garage shall be deemed to have been made unavailable by Landlord if Tenant is unable to use such space or spaces for the ordinary conduct of Tenant’s business due solely to Landlord’s performance of repairs, alterations or improvements to the Garage or the Building, or Landlord’s breach of an obligation under this Lease to provide services, perform repairs, or comply with Legal Requirements, in each case other than as a result of the negligence or misconduct of Tenant, Tenant’s agents or Tenant’s customers, delays caused by Tenant, or Unavoidable Delays.
  2. For purposes of this Section __:
    1. “Space Day” means one day’s use of a parking space in the Garage which Landlord shall have made unavailable as provided in Section __ (a) [above].
    2. “Threshold Amount” means, for any Lease Year during the Term, one hundred (100) Space Days.
    3. “Capacity” means the licensed capacity of the Garage for the parking of motor vehicles from time to time, in accordance with applicable Legal Requirements.
    4. “Credit Amount” means, with respect to any Space Day, (A) the annual Fixed Rent payable by Tenant for such Lease Year, divided by 365, multiplied by (B) one hundred twenty-five percent (125%), divided by (C) the Capacity.
  3. Notwithstanding anything to the contrary contained in any other provision of this Lease, for each Space Day in excess of the Threshold Amount occurring in any Lease Year during the Term, Tenant shall be entitled to apply, as a credit against future installments of Fixed Rent and Additional Rent payable by Tenant under this Lease, an amount equal to (i) the number of Space Days in excess of the Threshold Amount, multiplied by (ii) the Credit Amounts applicable to such Space Days.
  4. By way of example only, if during the second Lease Year, there shall have been 120 Space Days, and the Capacity were 160, then Tenant would be entitled to a credit against Fixed Rent in an amount equal to:
    1. Fixed Rental Amount ($386,250.00) divided by 365 = $1,058.22;
    2. multiplied by Number of Space Days over Threshold Amount (i.e. 20 Space Days) = $21,164.38;
    3. multiplied by 125% = $26,455.48;
    4. divided by 160 (the Capacity) = $165.35.

The “Threshold Amount” can vary, i.e. 80 days – 100 days, but the concept is simple. A garage operator has a business to run and it should be compensated if its space is unavailable under certain limited circumstances.

Signage. As with most retail operations, the proprietor of a garage will consider any clause relating to signage very carefully. The ability for potential patrons to see the garage owner’s sign(s) is a crucial element in determining the success of its business. The building owner will usually request that it approve such signage. The garage operator can agree to such a demand so long as landlord’s consent in not unreasonably withheld, delayed or conditioned. Some owners will try to add a provision pertaining to interior signage. That may be a bit overreaching. Another approach could be to state that approval is “deemed granted” if the signage is consistent in quality and design with signage existing at another suitable location—such as within a five block radius of your garage, or other signage at your property or immediately neighboring properties—as of the date of the Lease. The best approach would be for all parties to pre-approve the signage before the lease is signed.

Tenant’s Repair and Maintenance. This is a very heavily negotiated clause in most leases. In garage leases, especially in areas with colder climates, landlords believe that a tenant should acknowledge that the prevention of structural damage to the garage and the building resulting from the accumulation of road salt and similar automobile-borne substances is a significant concern to landlord. In order to minimize the presence of such substances within a garage, some landlords have required the tenant to agree that tenants will thoroughly wash and flush the floors, ramps, ceilings and walls of the garage not less frequently than once every six months, and more often if necessary, in order to prevent structural damage to the garage and the building. Usually such a clause requires tenant’s operations to be performed in accordance with the standards of quality applicable to parking facilities located in first-class office buildings in the location in question. Many other leases will also require tenant to paint the entire garage on or about the end of every third Lease Year in colors and in the manner subject to landlord’s prior approval. Understanding that concrete is porous and fluids dripping from the vehicles within the garage can damage the facility or be absorbed into the concrete are also important factors in deciding who should be responsible for repair and replacement obligations of the garage structure.

Insurance. The insurance provisions of any lease should always be looked at very carefully. One provision that is typically not in any other type of lease is a clause requiring “garage keepers legal liability insurance” for fire and explosion, automobile theft, riot, civil commotion, malicious mischief and vandalism. If you are not sure as to the amount of such coverage that should be required, adding that the limits should be the same as “customary in similar garages in the City of _____” is one way of handling the issue. Consult your insurance agent for further information with respect to this type of coverage.

Parking Rates. A tenant wants the unfettered right to establish hourly, daily, monthly and other parking rates and charges for ancillary services provided in the garage. Landlords want tenants to receive its approval first and believe such rates and charges should be consistent with those charged by parking facilities in first-class office buildings in the vicinity of the garage. In addition, it is not unreasonable for a landlord to require a tenant to comply with all applicable governmental requirements with respect to parking rates. Landlords often also ask for limited free parking privileges for themselves and reduced rate accommodations for building residents.

Other Parking Facilities. Some larger landlords may run their own garage operations nearby. In those cases, it would be wise for a landlord to require the tenant to acknowledge that landlord, its principals, affiliates or related parties may currently or in the future own, lease, manage or operate, or have ownership or other interests in, other parking facilities which may now or in the future compete with the garage without any accountability to tenant.

Standards of Operation. This is a hot button for many landlords. They believe that the parties should recognize that the reputation and operation of the building as a first-class office building are extremely valuable assets. They further believe that the services furnished by the tenant under the lease are and will be identified by the occupants of the building, invitees and the general public with the owner and the building and are inseparable in the minds of such individuals with the services and reputation of the owner. They therefore insist that since the policies pursued by the tenant in respect of services furnished and personnel employed, their demeanor, dress and/or uniform, are of utmost importance to the owner, that all such policies should conform to the standards of operation of comparable buildings in the area. The exact “laundry list” of operating covenants can be quite lengthy and sometimes even rivals the list of operating costs and exclusions found in office leases. Another consideration relating to operations is how car exhaust fumes should be handled.

Parking Lifts. A tenant should attempt to add a clause in the lease that it may install vehicle lifts in the demised premises, provided that such installation is lawful and performed in compliance with all applicable laws, rules, codes and regulations. Landlords are not going to offer a tenant such rights. A tenant will rarely receive such an opportunity to increase the number of vehicles within the demised premises unless it asks for such right! The benefits to the tenant can be substantial. A landlord, knowing the value of such a right, may require a garage operator to pay a monthly fee to permit it to install the lifts.

Conclusion. The issues mentioned above provide a general overview of the concerns experienced practitioners face every day when they review a garage lease. It would be a big mistake to assume it is “just a lease.” The topics mentioned in this article raise some of the items that should not be overlooked in such agreements but there are quite a few additional pitfalls that have not been covered. Unless a garage operator or building owner consults an attorney experienced in handling these matters, they run the risk that an unforeseen problem can adversely impact their business.