CLP Lease Negotiation & Terms 2 — Questions and Answers
Question 1: A prospective tenant requests a 'free rent' period during lease negotiation. What is the correct term for this concession?
- Rent abatement (Correct answer)
- Rent deferral
- Rent moratorium
- Rent escalation
Correct answer: Rent abatement
Rent abatement is the term for a period during which the tenant pays no rent, often granted as a concession during negotiations.
Question 2: Which lease clause gives a tenant the right to purchase the property at a predetermined price during the lease term?
- Right of first refusal
- Option to purchase (Correct answer)
- Right of first offer
- Lease buyout clause
Correct answer: Option to purchase
An option to purchase grants the tenant the contractual right to buy the property at a specified price within a set timeframe.
Question 3: During negotiations, a landlord insists on a personal guarantee from the principals of a corporate tenant. What risk does this address?
- Property damage risk
- Credit risk of the corporate entity (Correct answer)
- Occupancy overlap risk
- Lease assignment risk
Correct answer: Credit risk of the corporate entity
A personal guarantee protects the landlord if the corporate tenant defaults, holding individual principals personally liable for lease obligations.
Question 4: What does a 'kick-out clause' allow a retail tenant to do?
- Sublet space to another retailer
- Terminate the lease if sales fall below a threshold (Correct answer)
- Expand into adjacent space
- Negotiate rent mid-term
Correct answer: Terminate the lease if sales fall below a threshold
A kick-out clause permits a tenant to exit the lease early if gross sales do not meet a contractually defined minimum level.
Question 5: A lease contains a 'co-tenancy clause.' What event typically triggers this provision?
- A new anchor tenant moves in
- An anchor tenant vacates or a minimum occupancy level falls below a threshold (Correct answer)
- The landlord refinances the property
- The tenant sublets half its space
Correct answer: An anchor tenant vacates or a minimum occupancy level falls below a threshold
Co-tenancy clauses activate when an anchor tenant leaves or overall occupancy drops, often allowing the tenant to pay reduced rent or terminate.
Question 6: In a negotiation, the landlord proposes a 'gross-up' provision. How does this typically affect operating expense calculations?
- It caps the tenant's expense share
- It adjusts expenses to reflect 100% occupancy so no tenant benefits from vacancies (Correct answer)
- It passes only capital expenses to tenants
- It eliminates management fee reimbursements
Correct answer: It adjusts expenses to reflect 100% occupancy so no tenant benefits from vacancies
A gross-up provision inflates variable operating expenses to a full-occupancy level, preventing tenants from paying a disproportionately low share due to vacancies.
Question 7: A tenant negotiates a 'right of first offer' (ROFO) on adjacent vacant space. How does a ROFO differ from a right of first refusal (ROFR)?
- ROFO requires the landlord to offer the space to the tenant before marketing it; ROFR requires the tenant to match a third-party offer (Correct answer)
- ROFO requires the tenant to match any offer; ROFR lets the landlord set the price
- ROFO applies only to renewals; ROFR applies to expansions
- ROFO and ROFR are legally identical in most US states
Correct answer: ROFO requires the landlord to offer the space to the tenant before marketing it; ROFR requires the tenant to match a third-party offer
Under a ROFO the landlord must offer the space to the tenant first before marketing, while a ROFR only triggers once a third-party offer is received.
CLP Lease Negotiation & Terms 2
A prospective tenant requests a 'free rent' period during lease negotiation.
What is the correct term for this concession?