REAL ESTATE TRANSACTIONS SPRING 2017
Gershman,Donald S
6.1 Commercial Lease: Terms and Concepts. Landlord, Tenant, Guarantor Concerns
What is a Lease?
Part contract
Part conveyance
Has at least 2 parties
Subject to a finite terms
Leased Premises
Any kind of real property.
Rent: purchase price for periodic use
gross (all-in-rent) meaning it is all inclusive to cover anything
net – tenant pays fixed amount plus increase in maintenance in future years
triple net – their space and their pro rata share of expenses of a property
“Net” charges (3 types –Triple)
common area maintenance
tax (property taxes – operating expense)
insurance – casualty and liability insurance
Base Rent- payment for use of real property.
Percentage Rent: Commercial Lease
rent paid by retail tenant based on % of its gross sales.
retail leases only (ex. supermarket, hair salon)
T pays % of its gross sales above breakpoint to L
Percentage rent is negotiated
in some shopping centers it says that the success of the tenant has something to do with the LL and how they operate the shopping center and they should give them money over that amount
natural break point v. artificial break point
if T pays 120K of base rate and with a 10% factor = Natural is 1.2 Mil
Natural = divide base rate / %
Ex. 45K base ren
performance
Survives T’s bankruptcy
You can prove a letter of credit from a bank
Make sure you know what you are guaranteeing
ALSO Need Consideration for the Guarantee – Need to show how guarantor benefits
Security Deposits
Security for performance of tenant’s obligations
Duty to replenish
Interest requirements
Permitted Use
Lease clause defines permitted use for premises
L wants narrowly drawn
T wants broadly drawn
Exclusive Use
Exclusive right for T to:
sell particular products or services, or
operate as a type of use (e.g. bakery) – only baker in shopping center
L wants radius restriction (tenant can’t open up another thing)
Radius Restriction
Covenant by T not to open another store within specified distance from premises
LL can have a radius restriction when they have percentage rent – helps keep the store form not competing with itself
Transfers of Tenant’s Interest
Assignment:
transfers T's entire interest to Assignee
L in direct privity with Assignee
Subletting:
transfers less than all of T's interest to Assignee
L remains in privity with T
