There are three critical lease provisions that tenants should negotiate at the outset rather than negotiating them as part of a lease review. These provisions are the following:
1) Identifying the buildout completion date and the penalties for landlord’s failure to timely deliver. These are typically 2 days free rent for each day’s delay and if such failure lasts beyond 30 days the right to terminate the lease.
2) The right to assign the lease to a creditworthy tenant and a release from any further liability after the assignment.
3) A cap on common area maintenance (CAM) charges or a cap on the subset of these charges called controllable expenses (i.e. the expenses that can be bid out like landscaping, management company, etc.)
In my experience, these provisions can critically impact a tenant’s bottom line yet many times they are not negotiated at the outset along with the base rent, term, and other financial terms. The problem that arises is the landlord will not easily budge on these issues and the tenant is invested in the lease process and is reluctant to walk away from the lease after having spent so much time negotiating the business terms. The CAM cap issue, in particular, can significantly impact tenants in this economy where landlord’s are hurting and looking for all kinds of ways to pass along CAM charges to tenants. Don’t assume a landlord’s history of fairness will mitigate the concern here as I have seen property portfolios sold to new landlord’s in the last few years who overpaid and now need to recoup that investment by foisting CAM costs on unsuspecting tenants. In short, these three issues appear in almost every lease and tenants should negotiate them at the outset and not wait until they receive the lease.
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