Lease Negotiation & Terms Flashcards
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Read the first 7 Lease Negotiation & Terms flashcards as text
An appraiser must value the leased fee interest in a property with a below-market lease. Compared to the fee simple value, the leased fee value will TYPICALLY be:
Answer: Lower, because the below-market contract rent reduces income and value
A below-market contract rent reduces the income capitalized under the leased fee interest, resulting in a value below the fee simple estimate.
A 'subordination, non-disturbance, and attornment' (SNDA) agreement protects the tenant by ensuring that:
Answer: If the lender forecloses, the tenant's lease will be honored and not terminated by the new owner
The non-disturbance component of an SNDA agreement guarantees the tenant continued occupancy under existing lease terms even if the lender takes over through foreclosure.
A retail tenant's lease specifies percentage rent of 6% of gross sales over a natural breakpoint of $1,000,000. If annual gross sales are $1,400,000, what is the total annual rent?
Answer: $60,000 base rent plus $24,000 overage = $84,000 total
Base rent equals $60,000 (6% × $1,000,000 breakpoint); overage is 6% × $400,000 excess sales = $24,000; total rent = $84,000.
In negotiating industrial leases, a 'clear height' specification is significant because it:
Answer: Affects the operational usability of the space for racking and equipment, directly influencing market rent
Clear height determines how much vertical storage or equipment space a tenant can use, which directly affects demand and achievable rents for industrial properties.
An 'estoppel certificate' requested from a tenant in connection with a property sale primarily serves to:
Answer: Provide the buyer with the tenant's written confirmation of the lease terms and current status
An estoppel certificate is the tenant's written statement confirming lease terms, rent paid, and any known defaults, giving the buyer certainty about lease status.
When comparing lease rates for industrial properties, appraisers most commonly express rent as:
Answer: Dollars per rentable square foot per year, on a triple-net basis
Industrial rents are conventionally quoted as annual dollars per rentable square foot on a triple-net basis, allowing direct comparison across properties.
A lease clause providing the tenant with an 'expansion option' at a predetermined rent rate is most likely to benefit the tenant when:
Answer: Market rents rise above the predetermined expansion rent rate
An expansion option is valuable when market rents rise above the contracted rate, allowing the tenant to lease additional space below prevailing market rates.