Leasing: Broker Listing Agreements & Leases

Lease Agreement Structure

A summary of items with ** are often included in a 3-6 page letter of intent (LOI)

General

• Landlord**: legal name on the lease; often assigned to new owner if property is sold; typically, a single purpose LLC – example: 123 Main Street, LLC

• Tenant Name**: legal name on the lease

• Guarantor**: list if another party is guaranteeing the lease; example: parent company

• Premise**: actual space tenant is leasing; could be a suite or a building or multiple buildings; a visual of this may be shown in an exhibit

• Square Feet**: size of the suite tenant is leasing

• Building**: lease may reference a building that the suite is a part of

• Center**: lease may reference a center that the building is a part of

• Parking**: may list tenant’s parking rights

• Permitted Uses**: short description of how tenant will use the premises

• Signage**: list any signage rights

Key Dates

• Effective Date: date of the lease

• Start Date**: date the lease starts aka commencement date

• End Date**: date the lease ends aka expiration date

• Early Possession: if applicable, date the tenant can access the space prior to start date

• Delivery Date: if applicable, date landlord must have space ready for tenant if landlord is building tenant improvements for tenant; further detailed in exhibit

Rent & Other Financial Obligations

• Rent Schedule**: rent is $ or SF; if reviewing for potential acquisition during due diligence, this will be used to compare to underwriting model

• Free Rent**: if any

• Advanced Rent**: amount; typically, first month’s rent due at lease execution

• Security Deposit**: amount; typically, an amount equal to the last month’s rent

• Reimbursements**: see below; aka NNN charges aka CAM charges; typically, details are provided relative to what these charges include and don’t include; monthly estimates paid with annual reconciliation in first quarter of the year based on actual expenses

• Late Charges: when rent due and late fees

• Holdover Rent: typically, a percentage of last rent if tenant does not vacate; example 150% 

Reimbursement types related to expense pass through:

• NNN aka Triple Net (industrial and retail) – 100% pass thru of CAM, property tax and insurance.  Tenant will pay it’s prorata share of expenses (ex. 10K SF tenant in 100K center pays 10%)

• Base Year/Stop (typically for office) – 100% pass through of expense increases over the year in which the tenant first occupied the space (e.g., at the end of the first year of the lease/base year, the actual operating expenses are calculated and become the tenant’s base year; at the end of consecutive years, the tenant will pay all amounts above the established base year amount)

• Gross (multifamily) – no pass through of expenses to the tenant

• Modified Gross – pass through of some but not all expenses directly related to the leased premises

Delivery Conditions & Tenant Improvement (TI) Costs

• Condition of Space at Start of Lease**: required by landlord at delivery; landlord ideally wants condition to be “as-is”; specific requirements may be listed in an exhibit

• Landlord TI Build**: if landlord is building tenant improvements; typically, referenced in exhibit

• Tenant TI Build**: if tenant is building tenant improvements; typically, referenced in exhibit

• TI Allowance**: tenant improvement amount and deadlines provided by landlord to tenant if the tenant is constructing the improvements; further detailed in exhibit

• TI Cost to Landlord**: tenant improvement amount and deadlines paid by landlord if the landlord is constructing the improvements; further detailed in exhibit

Tenant Options/Rights

• Renewal**: number of, notice date, renewal period duration, rent

• Termination**: notice date, costs

• Expansion**: Right of First Offer, Right of First Refusal, notice, duration, LL costs; Right of First Offer (ROFO): right to make an offer to lease; Right of First Refusal (ROFR): right to match any offer landlord receives

• Purchase**: notice date, ROFO, ROFR, ongoing or one time

• Sublease**: if allowed and under what conditions

Landlord Options/Rights

• Relocation: notice date, costs

• Termination: notice date, costs

Alteration Rights & Maintenance Obligations

• Tenant Alteration Rights: procedure for approval by landlord for tenant request to modify utilities and add trade fixtures (machinery and equipment)

• Tenant Maintenance Obligations: tenant typically maintains interior of premises

• Landlord Maintenance Obligations: landlord typically maintains exterior of premises

• Condition of Space at End of Lease: what is required by tenant at lease expiration

Defaults, Damage or Destruction, Condemnation

• Default: what constitutes a default, what are the notice provisions, what are the cure rights and obligations; ex: non-payment of rent or abandoning the premises

• Damage or Destruction: what happens in the event the premise is damaged or destroyed; typically, either party may terminate if it will take 60+ days to restore

• Condemnation: what happens in the event the premise is condemned; typically, the lease terminates without penalty to either party

Other Tenant Obligations

• Estoppel: when required; unilateral statement signed by tenant for benefit of an owner and/or lender stating the key terms of the lease

• Financial Statements: when required; typically, for the benefit of a buyer or lender

• SNDA: when required; subordination and non-disturbance agreement: tri-party agreement between landlord, tenant, and lender agreeing that the lease is still in effect if lender forecloses on the landlord; benefits both tenant and lender

Other Information

• Landlord Broker**: list name and company

• Tenant Broker**: list name and company

• Notices: formal conditions to notify the other party relative to lease issues such as defaults, exercising options, etc

Exhibits

• Premises and/or Building and/or Center: site or space plan

• Rules & Regulations: various rules imposed by landlord on tenant relative to use of premises, building, and center

• Guaranty: if any; will list requirements of guarantor, who will sign this document

• Hazardous Materials List: form of list that tenant must complete relative to use of hazardous materials; typically for industrial tenants

• Rent Payment Instructions: details on where and how tenant will pay rent

• Tenant Information: form that tenant fills out with contact information; may have different contacts for the premises, accounting, and business teams

• Tenant Insurance Requirements: (see below); a more detailed summary of requirements; tenants typically share this with their insurance broker who then provides proof of insurance to landlord in the form of an insurance certificate naming landlord as additional insured

•  Tenant Improvement Details: will say whether landlord or tenant is constructing; timeline for completion; estimate of costs, who pays costs and who is responsible for cost overruns; do not sign lease until space plan is agreed to and fully priced by a contractor

• Notice of Lease Term Dates: form of notice that will be used if the start of lease is tied to the completion of any tenant improvements; will list start and end date of the lease along with rent schedule and dates

• Move Out Standards: requirement by landlord on the tenant relative to how the premises must be left at time of tenant move out; the more detailed the better

Tenant Insurance Requirements

• Liability: enter amount required

• Umbrella: enter amount required

• Property: enter amount required

• Business Interruption: enter amount required

• Auto: enter amount required

• Workers’ Compensation: enter amount required

• Employer’s Liability: enter amount required