Commercial Leases: A Discussion of Legal, Negotiating and Drafting Considerations For Build-Out, Operating Expense, Tax and Other Expense Clauses

By ordering this OnDemand Webinar, you will learn the types of expenses commercial tenants should expect to incur and how to appropriately attempt to limit such expenses. By limiting expenses, you’ll go a long way toward protecting the tenants you represent against unforeseen leasing costs. Such expenses include the cost of improving the premises, operating cost pass-throughs, real estate taxes, extra and excluded services, utilities, repairs and approvals.

Authors

Agenda

General Factors

• Strength of Market
• Position of Landlord
• Creditworthiness of Tenant

Costs to Prepare the Premises for the Tenant

• Office vs. Retail
• Turnkey vs. Allowance
• Bidding
• Cost of Delays
• Union vs. Nonunion
• As Is vs. Landlord Costs: Walk Through With Architect/Contractor

- Demolition: Define to Include Removal of Wires, Conduits, etc.

- Removal of Hazardous Materials

- Structure, Including Windows

- Sufficient Utilities: Plumbing, Electrical, HVAC

- Life Safety: Sprinklers, Strobes, Sirens, Alarms, Pull Boxes, Warden Stations, Panels

- Enclose Risers, and Patch Walls and Floors

- ADA and Handicapped Work

- Common Area Work

• Future Renovations: Paint, New Carpet

Operating Expenses

• Specific Step-Ups vs. CPI vs. Pass-Throughs
• Base Year: Gross-Up
• Historical Increases
• Proportionate Share: Equitable? More Than 100 Percent Reimbursement?
• Examples of Exclusions

- Capital Improvements

- Special Services, Repairs, Utilities, Improvements for Tenants

- Cost of Repairing Casualty/Condemnation

- Management Office, Salaries Above Property Manager

- Depreciation

- Taxes

- Costs of Marketing and Leasing

- Cost of Correcting Building Defects

- Curing Defaults

- Insurance Premium Increases Caused by Particular Tenant

- Costs to Remove Hazardous Materials

- Costs to Comply With Handicap Laws

• Caps

- Management Fees

- Controlled Caps

- Charges by Landlord Affiliates

• Audits and Challenges

Real Estate Taxes

• Base Year: Abatements, Concessions
• Historical Increases
• Proportionate Share
• Examples of Exclusions

- Inheritance, Gift, Transfer, Mortgage, Franchise, Excise, Net Income/Profit Taxes, Capital Levies, Penalties/Interests

• Assessments: Amortization
• Challenges and Refunds

Other Expenses

• Services and Utilities

- Ordinary and Supplemental Utilities

- After-Hours Charges: HVAC, Building Staff

- Supplemental AC, Condenser Water

- Freight Elevators, Hoisting and Loading Dock

- Cleaning, Garbage Removal and Snow Removal

- Lighting and Ballast Replacement

• Repairs/Restoration: Landlord vs. Tenant Responsibilities, End of Term
• Approval Costs: Assignment/Subletting, Alterations
• Parking
• Signage: Suite Entry and Directory Signage
• Security: Key/Access Cards
• Changes In The Law
• Promotional Costs
• Security/Terrorism Insurance

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