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A landlord will generally prefer to amortize any of its costs associated with the lease over the term of the lease, rather than to pay them upfront.
Whether you represent a tenant or a landlord in a lease negotiation, it is important to recognize that free rent concessions generally are part of the equation.
Tenants should attempt to negotiate that any landlord recapture provision relating to free rent should “sunset” (become null and void) after a pre-specified date in the lease (e.g., the 2nd or 3rd anniversary of the rent commencement date).
From a landlord’s perspective, the LOI should limit the ability to exercise the renewal option right, so that it is personal to that of the tenant only.
For renewal rents based upon fair market value, tenant advocates should seek for (a) the renewal term rental amount to be 90%-95% of fair market value, and (b) the fair market value to be based upon all “relevant market factors.”
In many leases, in addition to a real estate tax escalation, among the more popular (or unpopular, depending on your perspective) rent escalation provisions are those which require the tenant to pay its proportionate share of operating expenses over a base year, and an agreed upon increase in fixed rent based upon a predetermined percentage increase.
Generally, most landlord advocates prefer a CPI or straight predetermined percentage bump in the rent as opposed to an operating expense escalation.
Operating expenses never include costs attributable to ownership, management and repair and maintenance expenses.
Operating expenses do not include costs attributable to the wages, salaries and benefits of tenant’s employees.