Lease Negotiation & Terms Flashcards

A tenant in a retail center negotiates an 'exclusivity clause.' This provision:

Answer: Prohibits the landlord from leasing to direct competitors in the same property

An exclusivity clause prevents the landlord from leasing to businesses competing directly with the protected tenant within the same shopping center.

Which lease structure transfers the MOST financial risk to the tenant?

Answer: Absolute net (bondable) lease

An absolute net or bondable lease requires the tenant to pay all expenses including structural repairs and capital replacements, maximizing tenant financial exposure.

A lease 'base year' in an office gross lease is significant because:

Answer: It establishes the baseline operating expenses above which tenants pay their proportionate share of increases

The base year fixes the landlord's operating expense responsibility; tenants pay their pro-rata share of any expense increases above the base year amount.

An appraiser finds that a lease contains an 'early termination option' exercisable by the tenant after year 5 of a 10-year term. This feature primarily affects value by:

Answer: Introducing income uncertainty and potentially shortening the effective income stream

Early termination options create income risk by allowing the tenant to vacate, potentially disrupting the projected cash flow and reducing value.

In lease analysis, 'load factor' or 'add-on factor' refers to the ratio between:

Answer: Rentable area and usable area, used to convert usable square footage to rentable square footage

The load factor is the ratio of rentable to usable area; it accounts for the tenant's proportionate share of common areas added to their exclusive space.

A landlord and tenant disagree on lease renewal rent. The lease specifies rent shall be set at 'fair market rental value' determined by appraisal. The appraiser's role in this context is:

Answer: To provide an independent opinion of the market rent for the space as of the renewal date

When engaged under a lease's fair market rent clause, the appraiser provides an impartial, independent market rent opinion, not advocacy or arbitration.

Which of the following is MOST likely to be negotiated as a landlord concession rather than a tenant concession in a soft commercial real estate market?

Answer: Extended free rent period combined with a reduced base rent

In a soft market, landlords offer concessions such as free rent periods and lower base rents to attract and retain tenants.