CRECI Lease Management and Execution 3 ā Questions and Answers
Question 1: A commercial tenant discovers that a major structural repair is needed in their leased space. The lease is silent on who bears responsibility. Under the common law rule, who is generally obligated to make structural repairs?
- The tenant, since they occupy the space
- The landlord, as structural elements are part of the building shell (Correct answer)
- Both parties share the cost equally
- The municipality, as building codes mandate structural compliance
Correct answer: The landlord, as structural elements are part of the building shell
Under common law, landlords are generally responsible for structural repairs unless the lease expressly shifts that obligation to the tenant.
Question 2: In a triple net (NNN) lease, which three expenses does the tenant typically pay in addition to base rent?
- Utilities, janitorial services, and internet
- Property taxes, building insurance, and maintenance costs (Correct answer)
- Mortgage principal, interest, and depreciation
- Management fees, leasing commissions, and capital improvements
Correct answer: Property taxes, building insurance, and maintenance costs
In a triple net lease, the tenant pays base rent plus the three 'nets': property taxes, building insurance, and maintenance/operating costs.
Question 3: What does a 'holdover' provision in a commercial lease typically specify?
- The tenant's right to remain after the lease expires under new negotiated terms
- The consequences and rent rate if the tenant continues to occupy after lease expiration without a new agreement (Correct answer)
- The landlord's obligation to hold the space for the tenant before the lease begins
- The procedure for the landlord to hold the security deposit after the tenant vacates
Correct answer: The consequences and rent rate if the tenant continues to occupy after lease expiration without a new agreement
A holdover provision establishes the legal status and typically an increased rent rate (often 125-150% of prior rent) if a tenant remains in the space after lease expiration.
Question 4: A commercial lease contains a 'force majeure' clause. Which scenario would most likely trigger this provision?
- The tenant's business experiences a decline in revenue
- A government-mandated shutdown prevents the tenant from operating the premises (Correct answer)
- The landlord fails to complete promised tenant improvements on time
- Interest rates rise, making the tenant's debt service burdensome
Correct answer: A government-mandated shutdown prevents the tenant from operating the premises
Force majeure clauses excuse performance obligations when extraordinary events beyond a party's controlāsuch as government orders, natural disasters, or pandemicsāprevent performance.
Question 5: When calculating 'rentable square footage' in a commercial office building, what is included that is NOT included in 'usable square footage'?
- The tenant's private offices and conference rooms
- A pro-rata share of common areas like lobbies, hallways, and restrooms (Correct answer)
- Exterior wall thickness and window areas
- Mechanical room space allocated to the tenant's HVAC
Correct answer: A pro-rata share of common areas like lobbies, hallways, and restrooms
Rentable square footage includes the tenant's usable space plus their proportionate share of common areas, which is why it is always larger than usable square footage.
Question 6: A tenant in a multi-tenant office building wants to ensure that if the anchor tenant leaves, they can reduce rent or terminate. Which lease clause addresses this?
- Subordination clause
- Co-tenancy clause (Correct answer)
- Non-competition clause
- Most favored nation clause
Correct answer: Co-tenancy clause
A co-tenancy clause allows a tenant to reduce rent or terminate the lease if specified anchor tenants cease operations, recognizing that other tenants' presence drives customer traffic.
Question 7: What is the legal effect of a 'merger clause' (also called an integration clause) in a commercial lease?
- It allows two adjacent leases to merge into a single lease agreement
- It establishes that the written lease is the entire agreement, superseding all prior negotiations (Correct answer)
- It permits the landlord to merge the security deposit with the last month's rent
- It requires any future lease amendments to be recorded with the county
Correct answer: It establishes that the written lease is the entire agreement, superseding all prior negotiations
A merger or integration clause states that the written agreement constitutes the complete and final understanding of the parties, preventing reliance on prior oral or written representations.
CRECI Lease Management and Execution 3
A commercial tenant discovers that a major structural repair is needed in their leased space.
The lease is silent on who bears responsibility.
Under the common law rule, who is generally obligated to make structural repairs?