Lease Negotiation & Terms Flashcards

A tenant negotiates a lease with a 'personal guarantee.' What does this mean for the tenant business owner?

Answer: The owner's personal assets can be pursued if the business entity defaults on the lease

A personal guarantee makes the individual business owner liable for lease obligations if the business entity fails to pay, exposing personal assets to the landlord's claims.

In lease negotiations, what does the term 'load factor' (also called 'add-on factor') represent?

Answer: The percentage difference between usable and rentable square footage

The load factor is the ratio by which usable square footage is multiplied to calculate rentable square footage, accounting for the tenant's share of common areas.

Which type of lease clause allows a landlord to increase rent annually based on changes in the Consumer Price Index (CPI)?

Answer: CPI escalation clause

A CPI escalation clause ties periodic rent increases to the CPI, ensuring rent keeps pace with inflation without requiring renegotiation.

A lease clause grants the tenant 'exclusive use rights' within a shopping center. What does this protect?

Answer: The right to be the only tenant in the center conducting a specific type of business

An exclusive use clause prevents the landlord from leasing other space in the same property to a competing business in the same category.

What is a 'lease abstract' and why is it important during due diligence on an investment property?

Answer: A condensed summary of key lease terms used for quick review and analysis

A lease abstract summarizes critical provisions—rent, term, options, and obligations—allowing investors and lenders to quickly assess lease risk without reading lengthy documents.

Under U.S. landlord-tenant law, a 'constructive eviction' claim by a tenant typically arises when:

Answer: The landlord's failure to maintain habitable conditions forces the tenant to vacate

Constructive eviction occurs when the landlord's neglect renders the property uninhabitable, effectively forcing the tenant to leave even without a formal eviction notice.

A lease includes an 'assignment clause.' How does assignment differ from subletting?

Answer: Assignment transfers the entire lease interest to a new tenant, while subletting creates a new tenancy below the original tenant

In an assignment, the original tenant transfers all lease rights to a third party; in subletting, the original tenant remains on the lease while renting to a subtenant.