Landlords: What's the worst part about this proposed lease agreement?
---- Quick background ----
1. We covered leasing yesterday in our FastTrack cohort. Special thanks to Torrey Littlejohn and Adeline (Addie) Ludwig for leading a fascinating discussion and making the content real.
2. Documents define our industry, and there's no way around them. We focus on creating a road map to assist our course participants in (i) navigating the four critical sets of documents and (ii) understanding how to interpret the most hotly negotiated provisions.
3. As outlined in this slide, we believe there are 10 critical topics to look for in a lease agreement.
4. The terms below are from a hypothetical lease agreement for a large tenant in a new office building. Put yourself in the shoes of the owner/landlord. Which provision has the most adverse effect on your property value? i.e., if you could pick one provision to water down, which one would it be?
---- Proposed lease terms ----
(A) Base rent and “bumps”:
$40/SF on 200,000 SF with 2% annual increases.
(B) Lease term:
12 years
(C) Expense reimbursements:
Pro rata share of all operating expenses, controllable expenses capped at 5% growth a year (cumulative and compounding).
(D) TI allowance:
$40 million
(E) Renewal option:
One 10-year renewal at prevailing market rate with arbitration rights
(F) Fixed expansion options:
Landlord must give Tenant an option to lease an additional 50,000 SF of adjacent space in the building at the beginning of year five at prevailing market rates.
(G) ROFO:
Tenant has a right to lease any space that comes available in the building during the first five years of the lease term, subject to prevailing market rates/terms, but Tenant will be allowed to extend existing lease end date to be coterminous with expansion space.
(H) ROFR:
Tenant has the right to match any third-party offers on any space in the building as long as the Tenant leases at least 100,000 SF in the building. However, Tenant must match all third-party terms.
(I) Termination and contraction options:
Tenant has the right to terminate its space in year five, subject to a $10 million termination fee.
(J) Exclusive uses:
Tenant has the right to be the only financial services firm in the building.
COMMENTS