CHI Lease Negotiation & Terms 3 â Questions and Answers
Question 1: A landlord includes a 'demolition clause' in a lease. What right does this grant the landlord?
- To demolish interior improvements made by the tenant
- To terminate the lease early if the building is redeveloped (Correct answer)
- To refuse lease renewal if structural repairs are needed
- To reduce lease space due to building renovation
Correct answer: To terminate the lease early if the building is redeveloped
A demolition clause allows the landlord to terminate the lease before its natural expiration if the property is scheduled for demolition or major redevelopment.
Question 2: Which lease provision protects a tenant from rent increases tied to rising property taxes or operating costs in a gross lease?
- Expense stop clause (Correct answer)
- CPI escalation cap
- Net floor provision
- Base year protection
Correct answer: Expense stop clause
An expense stop sets the maximum operating expense amount the landlord absorbs; costs above the stop are passed to the tenant, while a gross lease with no stop shields tenants from all increases.
Question 3: During lease negotiations, a tenant requests a 'co-tenancy clause.' What protection does this provide?
- The right to share the lease with another business entity
- Rent reduction rights if a key anchor tenant vacates the property (Correct answer)
- Protection from eviction if a co-signer defaults
- Equal rights with the landlord over lease modifications
Correct answer: Rent reduction rights if a key anchor tenant vacates the property
A co-tenancy clause allows tenantsâespecially retailersâto reduce rent or terminate the lease if an anchor tenant departs, reducing customer traffic.
Question 4: What does 'usable square footage' refer to in commercial lease negotiations, as distinct from 'rentable square footage'?
- The space a tenant actually occupies exclusively, excluding shared areas (Correct answer)
- The total building square footage divided by number of tenants
- Square footage calculated after deducting parking and exterior walls
- The maximum space a tenant may occupy under zoning rules
Correct answer: The space a tenant actually occupies exclusively, excluding shared areas
Usable square footage is the space the tenant physically occupies, while rentable square footage adds a proportionate share of common areas such as lobbies and hallways.
Question 5: A 'right of first offer' (ROFO) clause in a lease gives the tenant:
- First option to purchase the building at market value
- The right to be notified and bid before space is offered to others (Correct answer)
- Priority renewal rights over all other tenants in the building
- Automatic lease renewal before the landlord can offer to new tenants
Correct answer: The right to be notified and bid before space is offered to others
A ROFO requires the landlord to present terms to the existing tenant before marketing space or the building to outside parties.
Question 6: Which clause in a residential lease typically requires a tenant to give written notice before vacating, protecting the landlord's ability to find a replacement tenant?
- Vacate provision
- Notice-to-quit clause
- Advance notice requirement (Correct answer)
- Constructive eviction clause
Correct answer: Advance notice requirement
An advance notice requirementâcommonly 30 or 60 daysâobligates the tenant to inform the landlord in writing before moving out to allow time for re-leasing.
Question 7: In lease negotiation, what is a 'tenant improvement allowance' (TIA)?
- A rent discount granted for early move-in
- Landlord funds provided to build out or renovate the leased space (Correct answer)
- Tax credits tenants receive for energy-efficient upgrades
- Reimbursement for tenant-paid common area maintenance costs
Correct answer: Landlord funds provided to build out or renovate the leased space
A TIA is a landlord contribution toward the cost of constructing or improving the tenant's space to meet their specific needs.
CHI Lease Negotiation & Terms 3
A landlord includes a 'demolition clause' in a lease.
What right does this grant the landlord?