Club Considerations: Real Estate

By Susie Cirilli & Jennifer Johnson

Soccer is seeing unprecedented expansion in the U.S., on both the men’s and women’s side.  As discussed in previous blogs professionalizing the women’s game is vital to its survival.  A crucial piece of this is real estate.

As the beautiful game increases in popularity, proper training facilities and match day venues are at a premium.  Clubs must make effective efforts to maintain rights to these facilities.  While real estate terms may seem mundane or unimportant, they can be crucial to the viability of the club.  A real estate transaction has an impact on everything from fan attendance and vendor availability to media rights among other things.

For instance, loss of primary tenant status can result in playing games on days or at times that are inconvenient for the fan base, or the streaming platform broadcasting the game. 

Let’s take a look at some general real estate basics for clubs to consider when negotiating leases.

LEASE NEGOTIATION AND DRAFTING CONSIDERATIONS

Before any club enters into a lease, it should assess what matters the most to the club.  Is it flexibility to leave?  Is it certainty of having a home for the years to come?  Clubs must evaluate its needs and wants.  Then, after this self-reflection, enter into agreements that reflect these needs and wants.  It is important to remember that Clubs can contract for anything, so long as it is not illegal.  Prudent clubs will be creative and thinking of all scenarios when entering into lease agreements.

There are some big picture themes that almost all commercial leases

1.     Security Deposit

Some leases require a security deposit.  In the commercial world, it can come in forms other than cash.  For example, a Letter of Credit is a financial instrument used to guarantee a tenant’s ability to fulfill its financial obligation. It may be an alternative to a Club having to provide a traditional security deposit at the commencement of the lease term.

2.     Rent

a.     What’s Included?

Prudent clubs will confirm what is included in the rent. Sometimes, tenants are responsible for additional rent to pay for costs such as utilities or labor. Additionally, if parking is included, what are the terms regarding parking management, fees and accessibility. Understanding your rights regarding signage and branding is also crucial. What sponsorship opportunities are available to you because you are the primary tenant? Which ones are not available to you if you are not?

b.     How is it Calculated?

If a club is charged for such costs, confirm whether this is included in the base rent, or owed in addition to the base rent.

c.      Revenue Sharing

A club may negotiate revenue sharing arrangements for concessions, parking and other income streams to off-set its annual rental costs.

3.     Term (Duration)

How long does the agreement last?  Typically, commercial properties offer lease contracts with a minimum term length of at least a year. Many contracts require a 3 to 5 year commitment. Longer terms can be restrictive while shorter terms allow you to be more flexible if you don’t want to be tied down to a property for a certain amount of time. However long terms contracts give you more negotiating leverage and security with predictable rental costs.

4.     Permitted Uses

Clubs entering into the lease should assess what they need the space for.  Will it just be for match days? Will the club host corporate events at the venue?  All of this can be explored upon entering into the lease.

a.     Exclusive Use

Entities can attempt to limit competition by demanding an exclusivity clause. This would prohibit competing secondary tenants in the same space.  As with any contract, it is crucial to clearly define who and what uses are prohibited.

Remember, clubs can contract for anything.  For example, while it may be unlikely for a landlord to agree to allow the club to be the ONLY soccer club to use the venue, asking for such a term may set the tone for negotiation. It also would not be unreasonable to request priority scheduling and vendors. 

b.     Options for Use

Clubs can specify which days they need priority.  Clubs can prioritize match days, or days that generally bring in the most fans as their designated club days. They can also insure they are no blackout dates or restrictions during peak seasons.   

5.     Renewal What is the option to renew? Always negotiate for the option!

Renewal is usually tied with the term of the lease.  What happens when the initial term ends?  Clubs can negotiate for options upon renewal.  This must be specific to the lease.  The Club can attempt to control future rent amounts, and future use.  Cautious clubs will aim to secure as much clarity and control as possible upon renewal.  Clubs can negotiate to have priority over the use of the venue.

6.     Termination (How Do Parties Get out of the Lease)

Ensure a thorough review of the lease terms, and always review the termination provisions.  NEVER agree to a landlord having unilateral termination rights.

7.     Notice Before Vacating

It is important to weighing the values of stability versus flexibility.  If a club wants maximum flexibility, then negotiate shorter notice of vacating.  If the venue is not conducive for the fan experience, of the venue is too small, clubs can negotiate an easy out.  Usually, six months is seen as a reasonable amount of time.

8.     What’s the penalty for breaking my lease?

Sometimes, entities will have to break a lease. Clubs should be equipped with this information at the outset of the lease.  That way, they know ahead of time the financial impact of breaking the lease. 

9.     Subtenants

Clubs should understand their freedom in allowing subtenants in the venue. Whether it is food vendors, or pre-game fan fare.

Bottom Line

Entities can contract for anything so long as it is legal.  Successful clubs will take their time and think about certain scenarios and include terms that address same.  The emergence of new teams and leagues results in more competition for training and match-day facilities.  These real estate documents must be drafted with this expansion in mind. 

A common fact pattern these days is that a club may be the only team in town at the outset of the contractual relationship. However, by the end of the contractual term, there could be other leagues and teams in the same city.  These new teams will be vying for access and use of the same facilities.

Clubs must enter into these real estate deals expecting competition to enter their market.  Prudent clubs will include terms that protect against other teams affecting their ability to utilize the facility at issue.