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NEGOTIATING KEY LEASE PROVISIONS A Landlord's Point of View - page 4 / 60

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B.

Commencement Date: The commencement date may be a date certain, or, if

landlord will be constructing improvements to the premises, the commencement date may

be the date of substantial completion of the improvements. There should be a provision specifically stating that the landlord is not liable for delays in delivery of the premises.

C.

Confirmation of Commencement/Termination Date: Where there is an uncertain

commencement date, the tenant should be required to sign a confirmation of commencement

and termination dates at such time as the commencement is finally determined. This prevents confusion in the future.

    • D.

      Extension Options: Tenants will often negotiate options to extend the lease after the initial term. Landlords should ensure that adequate notice (i.e., 6 months or 1 year) of the tenant's exercise of the option is required. Usually base rent is adjusted to fair market value for the extension term or terms. There are various methods of determining market rent for the extension term. (See Forms 5, 6 and 7.)

  • V.

    RENT

  • A.

    Fixed vs. By Square Foot:

    • 1.

      Fixed or Base Rent: Landlords and lenders generally prefer fixed dollar

rental amounts unless actual future construction may vary the premises size substantially. This ensures a known income stream. Fixed rent should state monthly installments or annual amounts, payable monthly.

2.

Square Foot Measurement: Depending on the type of project (more

common in industrial and office leases) tenants may require that they only pay for

actual square footage of the premises on a per square foot rental rate. In such cases, the lease should be clear as to whether the per square foot rate is multiplied by usable or rentable area. Usable square footage is the actual area within the four walls of the premises. Rentable area includes a "load factor" for common areas, multi-tenant corridors, etc. The best reference for methods of computing "usable"

and "rentable" areas for various types of projects is the Building Owners and Management Association's ("BOMA") standard procedures for measurement.

    • 3.

      Costs of Improvements to the Premises: Landlords may want to have provisions designed to protect themselves against extra costs associated with constructing or upgrading the premises for a tenant. The lease may require the tenant to pay a certain amount of additional rent for the portion of costs of the tenant improvements which exceed a certain "allowance" or cost per square foot.

  • B.

    Percentage Rental: In retail leases, landlords often structure rent as a combination of

"fixed rent" and "percentage rent" based on the sales realized by the tenant in its business

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