Index and Scope

The Commercial Leasing Handbook + CHECKLISTS

Contents:

Chapter 1    What is a Lease Anyway?

Chapter 2    Leases: What's In? What's Out?

Chapter 3    The Parties to the Lease

Chapter 4    The Property Subject to Lease

Chapter 5    The Lease Term

Chapter 6    The Money Clauses

Chapter 7    Use of the Premises

Chapter 8    Utility and Contracted Services

Chapter 9    Repair and Maintenance

Chapter 10  Construction Issues

Chapter 11  Realtionships with Third Parties

Chapter 12  Insurance and the Allocation of Risk

Chapter 13  Remedies

Chapter 14  Boilerplate and Miscellaneous

Chapter 15  Quick Check

The Commercial Lease II

Chapter 1 — The Commercial Transaction and Its Participants

Scope Note: The typical commercial lease transaction involves both parties and players. The parties are generally understood to be the landlord and tenant who are contractually bound by the agreement. The players are other people and entities that will affect the transaction in some form. They include: lawyers and brokers who will provide professional advice to the parties; architects, engineers, and contractors who will be involved with the issues concerning the space and its physical use; accountants and business personnel who will evaluate pro formas and cash flows; and lenders who will decide whether the ultimate document is a satisfactory basis for a loan. This chapter gives an overview of both the parties and the players, and discusses the roles that they play in the commercial lease transaction and the perspectives that they bring to the negotiating table.

CONTENTS

1:1 The Parties and the Players, Generally
1:2 The Lease as Business Plan
1:3 Negotiability
1:4 The Landlord's Point of View
1:5 The Lender's Point of View
1:6 The Tenant's Point of View
1:7 The Broker
1:8 Checklist for Exclusive Listing Agreement Between Landlord and Broker
1:9 Checklist for Exclusive Tenant Representation Agreement

Chapter 2 — What is a Lease Anyway?

Scope Note: This chapter looks at the development of the modern commercial lease, including the evolution of the so-called standard form lease found throughout the country. The modern commercial lease is partly a restatement and partly a modification of the old common law conveyance of an interest in real estate. The failure to fully or adequately modify the underlying common law produces many situations that are unacceptable to both landlords and tenants.

CONTENTS  

2:1    Overview
2:2    The Common Law Background
2:3    The Addition of Goods, Services and Restrictions
2:4    The Standard Form Lease
2:5    Legal Issue
2:6    A Common Law Lease in Modern Times
2:7    The Phantom Lease
2:8    The Incomplete Lease: The Case Study Continues

Chapter 3 — Leases: What's In? What's Out?

Scope Note: This chapter looks at how to start writing, negotiating, reviewing, and analyzing a commercial lease. While there are no specific or detailed rules to follow to ensure that a particular lease is either complete or fair, commercial leases contain a series of traditional topics, and this book and its Checklists help focus on a wide variety of issues involved with those topics. By identifying and examining the traditional substantive areas of the commercial lease, the reader may determine whether unusual provisions have been added or whether normal and customary provisions have been excluded.  Each situation merits attention. Additionally, the analysis of each area will help raise a number of questions to assist both landlords and tenants in exploring issues that may not be readily apparent.

CONTENTS   

3:1    The Unlevel Playing Field
3:2    The First Step in the  Lease Negotiation
3:3    Lease Analysis:  A Suggested Approach
3:4    Drafting Suggestions
3:5    Understand the Bias of the "Standard Form" Lease
3:6    Pulling the String
3:7    Common Errors
3:8    Post-Execution Issues

Chapter 4 — The Parties to the Lease

Scope Note: To be enforceable, a lease must define with reasonable certainty: (a) the parties; (b) the property; (c) the rent; and (d) the term. This chapter addresses the first of those four elements - the description of the parties. It examines landlords and tenants and the forms they may take, and it looks at who is signing the lease and who will be responsible for the duties and obligations set out in the lease. Additionally, since of one of the main reasons for identifying a party is to determine the scope of that party's liability and ability to pay, issues concerning personal guaranties, as well as exculpation, are discussed.

CONTENTS   

PART I.  Analysis

4:1      Introduction
4:2      Identification of the Parties, Generally
4:3      Identifying the Landlord
4:4      Lease Signed by Managing Agent
4:5      Identifying the Tenant
4:6      Multiple Parties
4:7      Terminology
4:8      Typical Business Entities
4:9      Individuals
4:10    Corporations
4:11    Trusts and Land Trusts
4:12    Domestic Governmental Entities
4:13    Foreign Governmental Entities or Agencies
4:14    Partnerships
4:15    Limited Liability Companies
4:16    Limitation of Liability, Generally
4:17    By Receivers
4:18    By Partners
4:19    Guarantors
4:20    Drafting Suggestions; Existence of Parties
4:21    Drafting Suggestions and Guarantors

PART II.  Checklist

PART III.  Research References

Chapter 5 — The Property Subject to Lease

Scope Note: Chapter 5 reviews the second of the four substantive legal requirements necessary to create a binding lease: the description of the landlord's and tenant's respective property interests. Some property interests are very easy to describe and can be adequately handled by references to a suite or store number along with cross-hatched floor plans. Others may involve relationships with surrounding space and require additional thoughts and efforts to adequately complete those descriptions.

Property descriptions, like those of the parties, are one of the more under-analyzed and under-negotiated areas of the lease, and yet those descriptions are loaded with significant economic consequences. While the landlord will probably have thought through many of these issues in the preparation of its standard form lease, the tenant's failure to dig into the technical side early in the process is predictable and understandable. The tenant's first site inspections are usually for the purpose of generally evaluating the overall look and feel of the building or center, and it is really too soon to expect the tenant to be thinking about the more detailed aspects of defining the parcel that will be leased.

This Chapter also examines issues related to leases without demising walls. The practice is more prevalent than might be expected, although most are familiar with the office tenant who has an extra office or two and enters into space-sharing arrangements with others. Similarly, retail operations often utilize concessionaires who are given rights to occupy portions of their space. Many of these arrangements reflect only a cursory review and understanding of the implications which result from the lack of a defined secure space. These types of arrangements are referred to as "open floor plans." All of the issues discussed throughout the book will be applicable in attempting to document an open floor plan arrangement. However, the presence of a number of personal non-real estate type services can make some of the sorting out more tedious. It is also one of the areas which will occur on a regular monthly basis when it is time to pay for coffee, photocopies, and similar items.

This chapter looks at a number of ingredients that should be considered in defining each party's property interests. Since those interests can and often do change over the term of the lease, additional issues are examined concerning those changes and their impact on the lease. Detailed questions are also raised in connection with some of the most important issues included in virtually all office and retail leases that address the formulas for the pass-through of taxes, operating costs, and common area charges to tenants.  While the general concept of passthroughs is discussed in considerable detail in Chapter 7, the first, and possibly the most important, place to begin that examination is how the landlord's property and the tenant's premises are being defined to come up with the workable formulas.

CONTENTS   

PART I.  Analysis

A.        In General
5:1      Overview
5:2      The Demising Clause

B.        The Tenant's Premises
5:3      Generally
5:4      Appurtenant Rights, Generally
5:5      Parking
5:6      Elevators
5:7      Ingress and Egress
5:8      View Corridors
5:9      Signs and Directories
5:10    Common Areas in Retail and Industrial Leases
5:11    Changes in the Size of Tenant's Premises
5:12    Option to Expand
5:13    Option to Contract
5:14    Measurement of Tenant's Property

C.        The Landlord's Property
5:15    Generally
5:16    Landlord's Title
5:17    Extent of Landlord's Defined Property
5:18    Changes in Landlord's Property
5:19    Relocation Rights
5:20    Measurement of Landlord's Property
5:21    Terminology; "Usable" versus "Rentable" Area
5:22    Measurement Formulas
5:23    Changes in Definitions
5:24    Open Floor Plans
5:25    Access
5:26    Use
5:27    Security
5:28    Utilities
5:29    Lease Term Continuity
5:30    Common Areas
5:31    Measurement of Space
5:32    Alterations, Additions and Improvements
5:33    Termination
5:34    Contractual Amenities
5:35    Summary

PART II.  Checklist

Chapter 6 — The Lease Term

Scope Note: This chapter reviews the third of the four components necessary to create a lease: the term. It is important to remember that the existence of a defined "term" is one of the four criteria essential to the creation of a lease. It is possible that a definition of the term may be so ambiguous that the lack of a definite term may result in a finding that no lease exists. Drafting is very important in this area, and the common law "default" lease will not fill in the omitted terms without compelling evidence of mutual mistake, ambiguity, etc. The term of a lease is a business issue and the courts rarely will substitute a missing part. Tenancies come in a variety of types and include those for fixed periods, periodic tenancies renewable from period to period, and tenancies at will. This chapter primarily addresses the concept of a fixed tenancy, which is sometimes referred to as a tenancy for years.  The standard rule of law in this area is that the commencement and expiration of a lease term must be disclosed with reasonable certainty. Of course, from the business point of view it is of critical importance to develop a clearly defined terms since so many other sections of the lease are often based on anniversary dates. Rent adjustments, option notices, and insurance requirements are just a few of the sections that may be drafted in terms of the anniversary of the commencement date. This chapter looks at some of the different methods utilized to set up and define the lease term, along with the procedures to extend, renew or terminate the lease. Several new sections have been added to illustrate some of the consequences of poor drafting of an unclear lease term.

CONTENTS   

PART I.  Analysis

6:1      Overview
6:2      Terminology
6:3      Floating Commencement Dates
6:4      Sequence of Events Triggering Commencement Date
6:5      Notices
6:6      Confirmation of Commencement Date
6:7      Fixed Commencement Dates
6:8      Delivery of Possession
6:9      Guaranty of Possession
6:10    Changes in the Term; Options to Extend or Renew
6:11    Option to Terminate Early
6:12    Notice Requirements, Generally
6:13    Early Occupancy
6:14    Surrender of Possession
6:15    Early Surrender
6:16    Drafting Suggestions and Commencement Dates
6:17    The Term: Drafting Issues and Construction Plan Approval
6:18    The Term: Drafting Issues and Options
6:19    Options: Extension or Renewal?
6:20    Some Example Forms

PART II.  Checklist

Chapter 7 — The Money Clauses

Scope Note: This chapter looks at a number of issues related to rent, which is the fourth and final element necessary to enter into a legally binding lease agreement. At this point, the contracting parties should have been identified, the property interests defined and the term fixed. In addition to the tenant's basic agreement to pay rent, this chapter looks at a variety of lease provisions that adjust, escalate or add to the normal monthly rent payments, together with other clauses involving the regular and repeated payment of money.

CONTENTS       

PART I. Preliminary Considerations

7:1    Overview

PART II.  Money Clauses Under the Traditional Office Lease Model

A.        In General
7:2      Annual Base Rent
7:3      Setoff, Abatement, Rent Concessions

B.    Adjustment to Rent

1.        In General
7:4      Generally
7:5      Base Year Approach
7:6      Expense Stop Approach

2.        Pass-Through of Landlord's Taxes to Tenant
7:7      Generally
7:8      "Impositions and Assessments"
7:9      Rent Taxes
7:10    Standard Tax Exclusions
7:11    "In Lieu" Taxes
7:12    Reduction of Taxes
7:13    Tax Refunds
7:14    Tax Increases From New Construction

3.        Pass-Through of Landlord's Operating Expenses to Tenant
7:15    Generally
7:16    Expenses Incurred Less Often Than Annually
7:17    "Gross up" Provisions
7:18    Aggregated Tax and Expense Stops
7:19    Exclusions
7:20    Capital Costs
7:21    Legal Fees
7:22    Management Fees
7:23    Office of the Building
7:24    Equipment Rental
7:25    Deductions
7:26    A Different Approach to Operating Costs

PART III.  Money Clauses Under the Traditional Retail Lease Model

A.        In General
7:27    Annual Minimum Rent
7:28    Adjustments to Minimum Rent, Generally
7:29    Taxes

B.        Common Area Maintenance (CAM) Charges
7:30    Generally
7:31    Measurement and Participation Issues
7:32    Definition of CAM Costs
7:33    Leasing the Common Areas
7:34    Equipment Depreciation
7:35    Exclusions and Deductions

C.        Percentage Rent and Related Issues
7:36    Generally
7:37    Gross Sales
7:38    Operating Standards
7:39    Radius Clause

D.    Merchants' Association; Advertising
7:40    Generally

PART IV.  Additional Money Clauses Applicable to Office, Retail and Industrial Leases

7:41    Indexed Rent Adjustment
7:42    Stepped Rents
7:43    Multiple-Use Developments
7:44    Landlord's Books and Records
7:45    Estimated Payments for Pass-Throughs
7:46    Security Deposits

PART V.  Drafting Suggestions

7:47    In General
7:48    Drafting and Common Errors
7:49    The Money Clauses: Drafting and CAM Charges

PART VI.  Checklist

PART VII.  Research References

Chapter 8 — Use of the Premises

Scope Note: Once the parties have determined who they are, the property involved, the length of their expected relationship and its costs, the next logical set of issues concerns the question of what can be done with the premises and the property. The typical commercial lease contains a variety of clauses which: (a) tell the tenant what it can do; (b) tell the tenant what it cannot do; (c) tell the tenant what it must do; and (d) reserve or give to the landlord certain rights with respect to the premises and the property. This section of the lease contains very few landlord obligations, although it does contain an incredibly complex and lengthy list of obligations that must be undertaken by the tenant.

Many of these issues are addressed in the lease provisions dealing with use, rights reserved to the landlord, and rules and regulations. However, like most topics addressed in standard form leases, numerous other clauses scattered through the lease will also deal with these issues.

Many of the lease provisions in this section will have significant economic impact on both the landlord and tenant. Unlike the group of "money clauses" discussed in the previous chapter, which involve the regular payment of money, many of the clauses in this category place restrictions on the tenant's activities. The restrictions range from those critical to the tenant's business to the mundane, such as the prohibition on storing anything in the hallways.

The following sections review a number of the most common types of restrictions and duties imposed upon the tenant's use of the premises in a standard commercial lease, along with the traditional rights reserved by the landlord.

CONTENTS   

PART I.  Analysis

A.        In General
8:1      Overview

B.        Use (Office)
8:2      Generally
8:3      Zoning Issues
8:4      Business Restrictions
8:5      Incidental Uses
8:6      Insurance-Related Restrictions
8:7      Restrictions on Dangerous Items
8:8      Floor Loads and Damage to Building
8:9      Restrictions on Nuisances and Disturbances
8:10    Restrictions on Toxic or Hazardous Substances
8:11    Restrictions on Sleeping and Lodging Uses
8:12    Restrictions on Alcohol and Food

C.        Use of Leased Space (Retail)
8:13    Generally
8:14    Duty to Comply with Laws
8:15    Operating Covenants and "Going Dark"
8:16    Co-Tenancy Issues
8:17    Tenant Hours and Standards
8:18    Operation Limited to Approved Trade Name

D.        Use of Areas Near Leased Space (Office and Retail)
8:19    Tenant's Exclusive Use
8:20    Radius Clauses
8:21    Landlord's Use

E.        Rights Reserved by Landlord (Office and Retail)
8:22    Generally
8:23    Building Name
8:24    Signage
8:25    Lighting and Window Treatment
8:26    Control of Vendor Sources
8:27    Right to Show Premises
8:28    Right to Inspect Premises
8:29    Keys and Locks
8:30    Control of Common Elements
8:31    Landlord's Paramount Title
8:32    Landlord's Rights to Grant Exclusives
8:33    Approval of Equipment and Movement of Furniture
8:34    Vending Machines
8:35    Access to Mail Chutes
8:36    Access to Building
8:37    Rights to Change Public and Common Areas
8:38    Environmental Audits
8:39    Landlord's Right to Exercise Reservations

F.         Rules and Regulations (Office and Retail)
8:40    Generally
8:41    Aesthetic Appearance
8:42    Building Directory
8:43    Access and Obstructions
8:44    Cleanliness and Sanitary Facilities
8:45    Cooking
8:46    Noises, Odors and Interference with Others
8:47    Machinery and Dangerous Items
8:48    Keys
8:49    Furniture Movement
8:50    Use of Building Name
8:51    Electricity and Water Waste
8:52    Duty to Protect Premises
8:53    Peddlers and Solicitors
8:54    Compliance with Ethical Codes
8:55    No Pets
8:56    Control of Contractors
8:57    Light for Cleaning
8:58    Approval of All Wiring
8:59    Solicitation of Other Tenants
8:60    Bankruptcy or "Fire" Sales
8:61    Parking
8:62    Additional Rules and Regulations
8:63    Drafting Issues in General

PART II.  Checklist

PART III.  Research References

Chapter 9 — Utility and Contracted Services

Scope Note: This chapter looks at some of the contractual agreements typically negotiated between landlords and tenants regarding services to be provided during the term of the lease. Some of the services may also be handled as appurtenant rights, and are also reviewed in Chapter 5. Services that are treated as appurtenances can make a contractual service part of the real estate conveyance and can raise issues of whether real property law or contract law should apply. Access, elevators, and parking are some examples. A number of issues are reviewed where the contracted services are interrupted or become unavailable. The interruption of services and the tenant's rights in such situations also tend to be covered in other lease clauses, including those governing fire and casualty, those governing insurance, those governing repair and maintenance, and those outlining negotiated remedial actions such as self-help, termination and damages. While it is very important to ensure that any issues that are addressed in the primary lease provision conform to all the related provisions scattered throughout the lease, this is particularly true of those provisions concerning services and their possible interruption.

CONTENTS   

PART I.  Analysis

9:1      Introduction
9:2      Terminology
9:3      Services (Office)
9:4      HVAC (Heating, Ventilation and Air Conditioning)
9:5      Water
9:6      Cleaning
9:7      Window Washing
9:8      Rubbish Removal
9:9      Elevators
9:10    Electricity
9:11    Security
9:12    Additional Services
9:13    Utilities (Retail)
9:14    Interruption of Services
9:15    Abatements

PART II.  Checklist

Chapter 10 — Repair and Maintenence

Scope Note: This chapter looks at the often incomplete lease provisions concerning the repair and maintenance obligations of the parties and the somewhat ambiguous provisions concerning the parties' obligations to comply with various laws. Although these provisions were treated differently at common law, both caused similar types of questions to be raised: who is responsible to undertake a certain act of repair, maintenance, or compliance; who pays for it; must a repair, maintenance or compliance requirement meet some identified standard; does the sum total of all repair, maintenance and compliance responsibilities cover the entire shopping center or building; are any of the requirements conditioned on notice; and, importantly, is the failure to effect the duty a default by one of the parties to the lease? Both provisions involve actions that must be taken by someone; something needs to be fixed because it is broken or the government requires it.  This chapter also looks at environmental compliance issues, which are basic compliance-with-laws issues now being given separate treatment in many standard forms because of their increasing importance and high cost.

CONTENTS   

PART I.  Analysis

10:1    Introduction
10:2    Repair and Maintenance (Office)
10:3    Repair and Maintenance (Retail)
10:4    Access By Landlord
10:5    Compliance with Laws (Office and Retail)
10:6    Environmental Issues
10:7    Drafting Suggestions in General
10:8    Drafting Suggestions and Remedies

PART II.  Checklist
Chapter 11 — Construction Issues

Scope Note: This chapter looks at three different areas of the standard commercial lease which govern construction work in and about the tenant's premises. The first area focuses on the preparation of the premises for the tenant's initial occupancy. This work may be performed by the landlord, the tenant, or in many cases, both. The second area is usually covered under lease clauses with titles such as "alterations, improvements and additions" and addresses the tenant's need or desire to make changes to the premises during the term of its lease. Finally, this chapter reviews the provisions of the typical fire and casualty clause. White this is generally a remedial clause and would be equally at home in a discussion regarding insurance or remedies, it does involve construction in or about the tenant's premises and fits comfortably with this general topic.

CONTENTS       

PART I.  Analysis

11:1    Introduction
11:2    Construction of the Demised Premises
11:3    Delivery of Demised Premises
11:4    Office Construction
11:5    Office Work Letter Agreement
11:6    Retail Construction Issues
11:7    Retail Work Descriptions
11:8    Alterations, Improvements and Additions
11:9    Fire and Casualty

PART II.  Checklist

Chapter 12 — Relationships with Third Parties

Scope Note: This chapter looks at a series of clauses which address situations where a third party can or may step in and affect the relationship between landlord and tenant. These clauses are meant to resolve, as between the landlord and tenant, how risks will be allocated if a third party is introduced to the relationship as a result of the acts of either landlord or tenant. Included in this somewhat diverse collection of issues are clauses outlining the landlord's rights if the tenant's contractors or materialmen file liens against the landlord's title, the tenant's rights if the landlord's interest is foreclosed, the respective rights of the parties in the event of a condemnation of portions or all of the premises, building or center, and the landlord's and tenant's rights in potential assignments or subleases of the tenant's premises. Several of these rights arise under statute and are jurisdictionally specific and will be controlled by the laws in the applicable jurisdiction. The following overviews are offered as a "head's up" on these topics and are meant to alert the reader to the advisability of additional review.

Excluded from this chapter is the general subject of insurance, which is treated in Chapter 13.

CONTENTS       

PART I.  Analysis

12:1      Liens
12:2      Condemnation and Eminent Domain
12:3      Subordination, Non-disturbance and Attornment Agreements
12:4      Subordination of Lease
12:5      Prior Leases
12:6      Priority Status Changed by Agreement
12:7      Attornment by Prior Tenant
12:8      Attornment by Subsequent Tenant
12:9      "Non-disturbance" Arrangements
12:10    Assignments and Subleases
12:11    Assignment Versus Sublease
12:12    Landlord's Recapture Rights
12:13    Profits
12:14    Changes in Tenant's Organization
12:15    Payment to Landlord to Review Request
12:16    Credit Issues
12:17    Sublease/Assignment Restrictions
12:18    Conveyance by Landlord
12:19    Lease Changes Required by Lender
12:20    Estoppel
12:21    Rights of Designated Third Parties
12:22    Quiet Enjoyment
12:23    Brokers
12:24    Drafting Suggestions in General
12:25    Drafting Suggestions and Profits
12:26    Drafting Suggestions and Unreasonable Consent
12:27    Assignment or Sublease?

PART II.  Checklist
Chapter 13 — Insurance and the Allocation of Risk

Scope Note: This chapter looks at the management of risk through the acquisition of third-party insurance and the allocation of risk between landlord and tenant by waiver and indemnity arrangements. These clauses present an excellent opportunity for the landlord and tenant to identify clearly certain risks and agree that the assumption of those risks will be handled by third party insurance. This can easily remove some areas of contention from the lease documents.

CONTENTS           

PART I.  Analysis

13:1      Risk Management
13:2      Landlord's Property Insurance
13:3      Landlord's Liability Insurance
13:4      Tenant's Property Insurance
13:5      Tenant's Liability Insurance
13:6      Subrogation Issues
13:7      Business Interruption and Rent Insurance
13:8      Waiver of Claims
13:9      Indemnities
13:10    Attorneys' Fees
13:11    Drafting Suggestions in General

PART II.  Checklist
Chapter 14 — Remedies

Scope Note: This chapter looks at the traditional provisions included in virtually all standard form leases which set out a series of remedies available to landlords. Additionally, this chapter looks at selected tenant remedies, including the right to sue for rent and terminate the lease, and provisions for self-help.

CONTENTS       

PART I.  Analysis

14:1      Remedies, Generally
14:2      Landlord's Remedies (Office and Retail)
14:3      Performance by Landlord
14:4      Performance by Tenant
14:5      Forcible Entry and Detainer Actions
14:6      Holdover
14:7      Rights of Designated Third Parties
14:8      Miscellaneous Remedies
14:9      Warrant of Attorney
14:10    Late Charges

Chapter 15 — Boilerplate and Miscellaneous

Scope Note: This chapter looks at a number of provisions generally referred to as "boilerplate". These are provisions which are usually stuck in a "miscellaneous" type clause or just scattered throughout the latter parts of most commercial lease forms. There is no particular common thread between or among the items considered in this category other than the fact that they do not neatly fit into the more accepted standard form clauses that are reviewed in the first fourteen chapters of this Book.

CONTENTS

PART I.  Analysis

15:1      Introduction
15:2      Non-Waiver
15:3      Notices
15:4      Default Under Other Lease
15:5      Advice of Counsel
15:6      Unavoidable Delays
15:7      Cumulative Remedies
15:8      Interest
15:9      Contract Construction Clauses
15:10    Merger Provision
15:11    Lease Not an Offer
15:12    Light and Air
15:13    No Joint Venture
15:14    Time of the Essence
15:15    No Recording of Lease
15:16    Receipt of Money by Landlord
15:17    Rent as Independent Covenant
15:18    Consent
15:19    Additional Rent
15:20    Multiple Party Liability
15:21    Landlord's Lease Controls
15:22    Non-disclosure (or How the Landlord Tries to Make Sure That It Doesn't Have to Replicate the Tenant's Successful Negotiations)
15:23    Drafting Suggestions; Interest

PART II.  Checklist

Chapter 16 — Buying and Selling Leases

Scope Note: This chapter looks at the value of commercial projects as a reflection of their leases. In almost all cases, written leases are meant to add value to a commercial rental property. A property filled with tenants on oral month-to-month leases has a legally committed income steam of about 30 days. On the other hand, a property whose tenants are legally bound to pay rent through a variety of dates in the future provides a basis for potential purchasers, lenders and appraisers to make reasonable projections of income and reach conclusions of value. The leases typically address issues of rent increases, pass through of various operating expenses and reimbursement of costs and, depending upon their thoroughness and accuracy in doing such, will add to or subtract from the value of a property. A general review of this chapter will remind the reader that numerous decisions are made during the negotiation of an average lease which can impact its value at a later date. Negotiation decisions are frequently made with a view to completing that particular phase of the transaction and without regard to future issues of value.

CONTENTS   

16:1      Generally
16:2      Looking for Values: A Case Study
16:3      Appraisal Process
16:4      Due Diligence
16:5      Types of Commercial Property
16:6      Income Stream
16:7      Annual or Minimum Rents
16:8      Rent Increases and Kickers
16:9      Pass-Through/Reimbursements
16:10    Miscellaneous Income
16:11    Interruption of the Stream of Income
16:12    Abatements
16:13    Lease Terminations
16:14    Self-Help and Setoff
16:15    Protecting the Income Stream
16:16    Tax Issues
16:17    Conclusion

Chapter 17 — Ground and Air Rights Leases

Scope Note: This chapter looks at some of the questions that frequently come up while drafting and negotiating long-term leases. Long-term leases are generally, although not necessarily, either ground or air rights leases. Occasionally, a long-term lease may be a so-called master lease, which involves the lease of completed facilities and does not envision new construction as part of the basic leasing arrangement. In fact, many master leases contain strict prohibitions on making any changes in the completed facilities without the consent of the landowner. On the other hand, ground and air rights leases generally envision new construction and contain numerous provisions outlining what is to be built and when. The new construction falls into two general categories: multi-tenant use or a single-user facility. Each of the foregoing can be modeled with a subordinated or unsubordinated financing arrangement.

The first step in drafting a long-term lease is to identify those situations where the common commercial lease forms discussed throughout the Book will not work as a starting place for the transaction. The commercial leases illustrated throughout this Book are often referred to as "occupancy" leases and are most commonly used with short-term arrangements where the parties have outlined their rights and obligations with specificity. As the length of term increases, it becomes more difficult to deal in specifics and many of the lease clauses must start to deal with general concepts. For example, instead of approving specific improvements, the documents will establish a process to create, review, and approve such improvements; instead of setting specific rent adjustments, the lease will contain an agreed upon procedure such as the periodic use of appraisers. The issues reviewed in this chapter are designed to help outline some of the considerations important in long-term leases. In this chapter, references to "long-term" leases mean either a ground or air rights lease that envisions construction of new improvements (multi-tenant or single-user) during the term. "Landowner" refers to the underlying owner of the fee and is usually designated as the "Lessor" or "Landlord" in the actual leases.

CONTENTS   

17:1      Ground Leases, Generally
17:2      Air Rights Leases, Generally
17:3      Landlords, Tenants, Overlords, Lessees, Lessors, Sublandlords, and   
             Others
17:4      Term of Lease
17:5      Improvements
17:6      Security
17:7      Liens
17:8      Insurance
17:9      Rent
17:10    Leasehold Financing, Generally
17:11    Leasehold Financing, Unsubordinated
17:12    Leasehold Financing, Subordinated
17:13    Use
17:14    Sublease and Assignment
17:15    Non-disturbance Agreement
17:16    Defaults
17:17    Subdivision Control Issues
17:18    Air Rights, Access and Support Easements
17:19    Pass-Throughs and Taxes

Chapter 18 — Forms

Scope Note: A number of the forms contained in this chapter were use, with few if any changes, as the example provisions contained and discussed in the textual part of this book. They are, therefore, subject to the criticisms and interpretation issues raised throughout this book. As mentioned in the very beginning, no lease or document is completely fair to all parties and it would be a mistake to offer these as such. The form leases, at best, represent a starting point for a landlord to identify its concerns and specific needs and the same is true for most of the forms contained in this chapter. Once these forms are received by the tenant, the tenant needs to make sure that the forms are consistent with its final negotiated lease and reflect the allocations of risk contained in that document. Again, forms should be viewed as helpful starting places to begin to address an issue. The important work is in adapting the form to a specific transaction instead of trying to fit the transaction into the existing form.

CONTENTS

Office Lease
Shopping Center Lease
Lease Guaranty
License Agreement for Drop Box
License To Install, Maintain, and Operate Repeater and Antenna
License to Operate Vending Carts
Tenant Improvement Agreement - Short Form
Tenant Improvement Agreement - Long Form
Lease Amendment - Extension of Lease Term
Lease Amendment - Early Expiration
Lease Termination Agreement
Assignment and Acceptance Agreement
Sublease Agreement
Option to Extend Term
Option to Expand
Tenant's First Refusal Rights
Tenant's Right of First Offer
Memorandum of Lease
Non-disturbance Agreement #1
Non-disturbance Agreement #2
Non-disturbance Agreement #3
Non-disturbance Agreement #4
Non-disturbance Agreement #5
Non-disturbance and Attornment Agreement
Estoppel Letter #1
Estoppel Letter #2
Tenant Lease Synopsis [Retail]
Tenant Lease Synopsis [Office]
Long-Term Ground Lease
Open Floor Leasing Rider
Office Sublease (Open Floor Plan)

CUMULATIVE INDEX