CLP Lease Origination and Structure 3 — Questions and Answers
Question 1: Which lease provision specifies the tenant's right to expand into adjacent space if it becomes available?
- Right of first refusal (ROFR)
- Expansion option (Correct answer)
- Go-dark provision
- Subordination clause
Correct answer: Expansion option
An expansion option gives the tenant a contractual right to lease additional space, usually at a predetermined rent or formula.
Question 2: A tenant negotiates a lease with rent increases tied to the Consumer Price Index (CPI). This structure is called a(n):
- Percentage lease
- Escalation clause with CPI index (Correct answer)
- Step-up lease
- Participation lease
Correct answer: Escalation clause with CPI index
A CPI escalation clause adjusts rent periodically based on changes in the Consumer Price Index to keep pace with inflation.
Question 3: In commercial leasing, 'usable square footage' differs from 'rentable square footage' because rentable square footage:
- Excludes all common areas
- Includes a proportionate share of common areas (Correct answer)
- Only counts office-specific space
- Is always smaller than usable square footage
Correct answer: Includes a proportionate share of common areas
Rentable square footage adds a load factor (pro-rata share of common areas like lobbies and hallways) to the usable square footage a tenant occupies.
Question 4: A prospective commercial tenant with limited credit history offers a larger security deposit to secure a lease. Which additional credit enhancement might a landlord also request?
- Co-tenancy agreement
- Personal or corporate guarantee (Correct answer)
- Subordination and non-disturbance agreement
- Tenant estoppel certificate
Correct answer: Personal or corporate guarantee
A personal or corporate guarantee makes a third party liable for the tenant's obligations, providing additional security beyond the deposit.
Question 5: The clause in a lease that requires the tenant to keep the space open and operating during required hours is called a:
- Continuous operation clause (Correct answer)
- Co-tenancy clause
- Exclusive use clause
- Non-compete clause
Correct answer: Continuous operation clause
A continuous operation clause obligates the tenant to remain open for business during specified hours, which is especially important in retail settings.
Question 6: When structuring a ground lease, the landlord typically retains ownership of what during the lease term?
- The improvements constructed by the tenant
- The land only (Correct answer)
- Both land and all improvements
- The tenant's personal property
Correct answer: The land only
In a ground lease, the landlord retains ownership of the land while the tenant owns and operates improvements constructed on it during the lease term.
Question 7: Which of the following BEST describes a 'build-to-suit' lease arrangement?
- The tenant retrofits an existing space at their own expense
- The landlord constructs a building to the tenant's specifications (Correct answer)
- Both parties share construction costs equally
- The tenant purchases the land and leases back the building
Correct answer: The landlord constructs a building to the tenant's specifications
In a build-to-suit arrangement, the developer/landlord constructs a property specifically designed to meet the tenant's requirements, then leases it to that tenant.
CLP Lease Origination and Structure 3
Which lease provision specifies the tenant's right to expand into adjacent space if it becomes available?