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NEGOTIATING KEY LEASE PROVISIONS A Landlord's Point of View - page 7 / 60





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Annual Estimates and Reconciliation: Because the actual operating expenses will

vary depending on numerous factors, it is ideal for a landlord to estimate operating expenses for each calendar year and require tenants to pay operating expenses in monthly installments based upon the annual estimate. Landlord should have the right to adjust the amount of monthly payments during the year if landlord determines its estimate was incorrect. Otherwise, within a certain time period after the end of each calendar year, landlord should

cause a reconciliation of its actual operating expenses for the past year and the tenants should be given notice of any underpayment which should be paid within a certain time period (i.e., 30 days). The lease should provide for any overpayment to be credited to the tenant's future installments of rent and/or operating expenses.

    • E.

      Operating Expense Caps: Landlords should avoid agreeing to place annual caps on operating expense pass-throughs. If landlord agrees to do so for an important tenant, the cap should have the effect of preventing major increases (i.e., 10%-25%) and should apply only to controllable expenses and specifically not apply to uncontrollable costs such as taxes, assessments, insurance premiums, janitorial contracts, etc.

  • VII.



Right to Change: The lease should reserve to the landlord the unrestricted right to

modify and change the common areas of the building and to accesses and location of improvements on the project as landlord deems necessary. In addition, the lease should expressly disclaim any representation by landlord of the conformance of any existing or future improvements with the site plan. The use of the common areas by tenants, their employees and invitees should be non-exclusive and subject to such reasonable rules and

regulations as may be presently or in the future promulgated by the landlord.

    • B.

      Maintenance: Maintenance provisions requiring landlord to maintain the common areas should not be too specific. A general, reasonably measurable standard should be used.

  • VIII.



Commercial: The "use clause" should be specific, stating the tenant's actual

proposed use of the leased premises. Avoid general, broad uses such as "offices" or "variety store." Be sure to prohibit any uses which may hinder the landlord in leasing other portions

of the project.


Exclusive Use: If the landlord grants an exclusive use to one tenant, all other tenants

in the project need to be subject to and agree to honor the granting of the exclusive use. To the extent possible, landlords should avoid exclusive uses and, if granted, should limit them

to a reasonable restriction. For example, an exclusive on the sale of "food items" is very broad and may eliminate many potential tenants while an exclusive for the conduct of a

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