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Subject to certain exceptions, a tenant’s proportionate share of real estate taxes is typically based on the rentable square footage of the premises divided by the rentable square footage of the building.
In both the LOI and lease, it is in the interest of the landlord to include the basis for the proportionate share calculation.
In jurisdictions where real estate taxes are calculated off of the income generated by a building, landlords at a bare minimum should require their tenants to pay their proportionate share of real estate taxes based upon the approximate rent of such commercial tenant to that of the rent of all tenants in the building.
It is in the best interest of the tenant to have Business Improvement District (“BID”) charges as a straight pass through to the tenant, as opposed to included within the definition of real estate taxes and subject to an annual escalation.
Tenant advocates would prefer that the landlord only include expenses within the definition of real estate taxes that decrease the taxes or prevent or limit an increase to the taxes.
Tenants should attempt to secure language stating that the base year tax is to be computed as if the building was fully assessed and no longer subject to abatement.
Tenants should secure language that if the amount of taxes payable during the base year is reduced by final determination of legal proceedings, settlement or otherwise, the reduction shall be disregarded for the computation of tenant’s percentage of taxes payable under the lease.
A letter of credit security deposit creates significantly greater risk to a landlord than a cash security deposit.
It is always in the tenant’s best interest to put off the determination of the amount of the security deposit to the lease negotiation and have included in the letter of intent, “Subject to Landlord’s review of Tenant’s and its Principals Financial Statements and Returns.”
The following factors generally increase the amount of the security deposit: a shorter lease term, a tenant’s weak financial statements, and a large landlord concession (such as free rent and/or a tenant improvement allowance).
At its most basic level, a good guy guaranty is a document wherein a tenant’s principal or principals personally guarantee that the rent for the entire term of the lease will be paid, even if the tenant has surrendered the space and paid all rent through the date of surrender.
It would be advantageous for the landlord to have the guarantor guarantee the performance of non-monetary lease covenants such as repairs (in addition to the guarantee of payment).
With regards to the good guy guaranty, landlord advocates want the letter of intent to state, “Tenant’s principals will sign landlord’s standard good guy guaranty” and nothing more.
In a situation where the landlord is requiring a good guy guaranty (“GGG”), tenant advocates should try and secure language within the letter of intent akin to a “basic” GGG such as, “Tenant’s principal to guarantee the payment of base rent while the tenant is in occupancy of the premises. Tenant’s principal can unilaterally terminate the good guy guarantee by providing 30 days’ prior written notice to landlord of its intention to surrender the premises, delivering the premises broom clean and vacant to landlord on the surrender date, and lastly, paying all rent due and owing to landlord through the surrender date on or prior to the date of surrender.”
Tenants should negotiate an “exit strategy” that would release the guarantor from a good guy guaranty upon assignment of the lease, if the assignee’s principals sign a replacement good guy guaranty.
“RSF” stands for reusable square footage.
Loss factors are greater for a space on divided, multi-tenant floors than full floor spaces, since there is more common area on a divided floor.
It would not be unreasonable for a tenant to request the right to verify the rentable square footage (RSF) of the premises by way of re-measurement prior to the lease commencement date.
Among an estoppel, tax abatement, assignment and subletting, and repair and maintenance provision, the most important clause to negotiate a tenant’s potential exit strategy from a lease would be the assignment and subletting provision.
The letter of intent is a binding document that plays an integral part in setting the playing field on which the lease will be prepared and negotiated.
The fact that a landlord has not been able to find a tenant to occupy a particular space for over one year will diminish a prospective tenant’s leverage in relation to that space.
In a letter of intent (“LOI”), a tenant should readily agree to a provision, which states, “Tenant agrees to the terms and conditions of landlord’s standard assignment and subletting clause.”
At a minimum, a tenant should negotiate that the landlord not unreasonably withhold, condition or delay its consent to tenant’s request for approval of an assignment of the lease or a sublet of all or a portion of the premises.
In the event that a tenant attempts to sublet its space or assign its lease, it is in the landlord’s interest to negotiate for the option to either terminate the lease by recapturing the tenant’s space, or leaseback all or portion of the tenant’s space.
If a tenant requests landlord’s consent to assign its lease and landlord has a right of recapture, a landlord will more often than not recapture a tenant’s premises where the market rent for the tenant’s space is far below the rent which the tenant is currently paying under the lease and a significant amount of lease term remains.
In response to a landlord’s ability to recapture or leaseback the premises in the event that a tenant attempts to sublet out its space or assign its lease, the tenant should negotiate that such landlord right shall not apply to transfers to a related entity of tenant, a permitted transferee, or for permitted occupants.
A tenant can generally limit the cost of its electric bill by (i) incurring the charge directly from the local utility (i.e., by “going direct”) or (ii) paying the landlord for electricity used as measured by a sub-meter installed for the premises at landlord’s actual cost without markup from the landlord.
A direct electric provision in a lease is generally less cost-efficient for a tenant than a sub-metered electric provision.
When paying a landlord for electricity on a rent-inclusion basis, tenants should request that electrical services through the electrical outlets in the premises be supplied 24/7/365.
If the amount of watts provided is stated within the lease, a tenant is not allowed to request additional electrical capacity.
For a refurbished space, a tenant should insist that all light bulbs be changed prior to the commencement date by the landlord at no cost to the tenant.
In the letter of intent (LOI), a tenant’s advocate should attempt to negotiate language stating, “Landlord shall have no profit sharing rights for transfers to a related entity of tenant, a permitted transferee, or for permitted occupants.”
In the letter of intent (LOI), a tenant’s advocate should attempt to negotiate language stating, “Tenant shall be allowed to sublet or license up to one-third (1/3) of its space for uses similar to that of tenants permitted use (a “permitted occupant” or “desk sharer”) without landlord’s consent or right of recapture and profit sharing.”