The Commercial Tenant's Perspective (Series: Real Estate Leasing Dumbed Down)

1. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe Insert the cover image for this webinar on this slide entirely 1

2. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe Practical and entertaining education for attorneys, accountants, business owners and executives, and investors. 2

3. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe DISCLAIMER The material in this webinar is for informational purposes only. It should not be considered legal, financial or other professional advice. You should consult with an attorney or other appropriate professional to determine what may be best for your individual needs. While Financial Poise™ takes reasonable steps to ensure the information it publishes is accurate, Financial Poise™ makes no guaranty in this regard. About this PowerPoint: if you are looking at this PowerPoint without the benefit of listening to the conversation that surrounded it then you are doing yourself a disservice. This PowerPoint was prepared in contemplation of being viewed in conjunction with listening to a one hour webinar on the topic 3

4. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe MEET THE FACULTY Moderator: David Levy – NRC Realty & Capital Advisors Panelists: William D. Himmelstein – Tenant Advisory Group Howard Kline – The Law Offices of Howard F. Kline Scott A. Weinstein – Field and Goldberg, LLC 4

5. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe ABOUT THIS WEBINAR: The Commercial Tenant’s Perspective A commercial tenant views a lease negotiation quite differently than does the landlord. As most leases tend to be drafted by the landlord, a tenant must begin an uphill battle to gain as many concessions as possible. This is an arduous task made easier by a full understanding of what are the most important issues for a tenant in a commercial lease transaction. How does the financial profile of the tenant enter into the picture? Where can a tenant get hurt the most by hidden costs or unforeseen expenses? Why is “leverage” the most important concept to consider in this process? This webinar will help one understand how the tenant, generally the underdog in lease transactions, can turn the tables and become the most powerful player in the leasing game. 5

6. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe ABOUT THIS SERIES: Real Estate Leasing Dumbed Down Commercial real estate is one of the most understandable of investments. We live and work within real estate. It is tangible. One can see it. Yet, underneath this veneer of simplicity there are many legal and practical issues to consider. hese issues are impacted by the market and the leverage of the parties, both of which are moving targets. Purchasing real estate presents a number of threshold questions. Should a real estate investor use his or her own money, or seek investors? What type of legal structure makes the most sense and why? When one is in the process of acquiring a property, what are the most important items to inspect? What if the buyer finds a big problem? When one wishes to sell a real estate investment, how much is the right price? What is the value and how is it determined? At its base, commercial real estate is all about cash flow. What makes this possible is the commercial lease. A lease creates a long-term relationship between landlord and tenant, who have diametrically opposing goals. How does one navigate through the minefield of legal issues in a lease and end up with a contract that both sides can live with for years to come? 6

7. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe EPISODES IN THIS SERIES 3/11/19 Episode #1: The Commercial Landlord's Perspective 4/08/19 Episode #2: The Commercial Tenant's Perspective 5/13/19 Episode #3: The Commercial Broker's Perspective 7 Dates shown are premiere dates. All webinars will be available On Demand approximately 4 weeks after they premiere.

9. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe SINGLE TENANT VS. MULTI-TENANT Single Tenant: No demising wall, entire property typically included in lease. Most often the lease is triple net meaning that the tenant is responsible for all expenses of the property, including, property taxes, building insurance, maintenance and repairs, and utilities. Single tenant leases typically have longer terms and include more tenant obligations (i.e., repair and maintenance obligations). Multi-Tenant: This is more common, typically each tenant pays its proportionate share of the property taxes, building insurance, maintenance and repairs, and utilities. 9

10. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe VALUE OF TIME Prospective tenants often underestimate the length of time it will take to find suitable location and negotiate a lease. Allowing for adequate time can create a significant advantage. It allows you to become familiar with the market. Explore the possibilities of build-to-suits, new development projects that are not yet on line or simply consider more of the currently available space. Possibilities expand, so does your negotiating leverage. It is better to have multiple landlords/developers vying for your business. 10

11. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe LETTER OF INTENT OR TERM SHEET Negotiating terms via a term sheet is only the beginning; but a term sheet cannot address all of the issues that arise under a lease. The letter of intent (“LOI”) is typically negotiated directly by the parties and their brokers. LOIs are typically non-binding, however, this must be explicitly stated. 11

12. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe LETTER OF INTENT OR TERM SHEET (cont’d) From a tenant’s perspective, the more details in a LOI the better, in particular, the following terms should be included in LOIs: ✓ term of the lease ✓ commencement date and expiration date ✓ Base rent (if net lease) or gross rent (and what it includes if gross lease) ✓ tenant’s proportionate share of expenses and at least a rough list of what is included in the expenses and what is excluded 12

13. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe LETTER OF INTENT OR TERM SHEET (cont’d) Terms to include in LOIs CONT’D: ✓ the permitted use: this should include tenant’s specific use but should be as broad as possible ✓ Options (i.e., extensions, expansion, rights of first refusal, right of first offer, termination) ✓ Tenant inducements (i.e., rent abatement, tenant improvement allowance) ✓ Whether a security deposit or guaranty will be required (or note that such requirement will be based on landlord’s review of tenant financials) 13

14. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe BUILD-TO-SUIT/NEW CONSTRUCTION Tenants can benefit from being early in a renovation project if they make sure to see the following: 1. Evidence of Landlord control of the Site 2. Evidence of Landlord’s financing and equity capital. 3. Evidence of state grant funding, if part of the financing. 14

15. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe BUILD-TO-SUIT/NEW CONSTRUCTION (cont’d) 4. Evidence of a bind construction contract that offers compliance with current regulations. 5. Evidence of zoning and entitlements by the local municipality. 6. Evidence of design and construction approval by the local municipality. 7. Issuance of building permits. Without evidence as noted, a Tenant risks wasting valuable time with a “Owner” who may not yet own the property, or is unable to redevelop the property. 15

16. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe RENT STRUCTURES Triple Net Lease – is a form of lease whereby the tenant is responsible for all of the expenses of the property (i.e., including: real estate taxes, property insurance, utilities, maintenance and repairs). Gross Lease – is a form of lease where the tenant’s rental rate includes all of the buildings expenses (i.e., including: real estate taxes, property insurance, utilities, maintenance and repairs). Expenses are compared to a Base Year or Stop, and those increases (if any) are passed through to the Tenant, hence the term “pass-throughs.” 16

17. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe RENT OBLIGATIONS Many clients fail to understand that many other components can affect the total rent obligation. • Real difference between rentable square feet and usable square feet, particularly in office buildings where the common area on multi-tenant floors are allocated and included in the calculation of rentable square footage. This can result in a larger rentable square footage, which ultimately results in higher rent. • Base rent is one component of the total rent expense. 17

18. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe RENT OBLIGATIONS (cont’d) • Tenants are also responsible for its pro rata share of operating charges, which include a share of real estate taxes common area maintenance expenses and insurance expenses. • Pass through charges can be substantial and represent a significant rent expense. • A prospective tenant needs to consider these expenses and manner in which the prospective landlord addresses them. A gross lease rate of $30 psf might be more favorable than a net lease rate of $22 psf. 18

19. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe RENT OBLIGATIONS (cont’d) • Many leases are modified forms of triple net and/or gross. It is critical that the LOI specify what is intended rather than using terms of art that have different meanings to different people. For example, a “modified gross lease” is a lease where the tenant is required to pay for only some of the building expenses, and the LOI should specify which expenses so that there is an agreement between the parties (and not rely on each party’s understanding of what “modified gross lease” means). • Percentage Rent -typically found in retail leases, percentage rent essentially means that in addition to receiving annual basic rent, landlord will also receive a percentage of the tenant’s gross sales (typically only in effect after gross sales exceeds a certain agreed to amount called a “breakpoint”). 19

20. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe RENT OBLIGATIONS (cont’d) In new buildings where taxes and operating expenses are initially lower, tenants benefit from having a net lease. But in later years, once fully occupied, taxes will be higher. Gross leases are seen more often in older buildings. The key is choosing the right Base Year or Stop amount. The “Stop” is an amount above which the Tenant stops paying and the Landlord starts paying. Regardless of whether it’s a net or gross lease, tenant should ask landlords for the following: 1. Tax and expense history for the prior three years. 2. Planned capital improvement. 3. Landlord’s reasons underlying their tax and operating expense estimates for the upcoming year. 20

21. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe BUILDING OPERATING EXPENSES OR COMMON AREA MAINTENANCE (CAM) • “Building Operating Expenses” or CAM are all of the landlord’s expenses incurred in connection with the operation of the property in which the premises are located. Typically, this includes: taxes, insurance, maintenance, amenities and operating expenses. What is included and excluded in “operating expenses” should be specifically listed in the lease and is typically the subject of much negotiation. • Each tenant has a proportionate share of the Building shown as a percentage, based on its rentable size (the numerator) and the size of the Building (the denominator). 21

22. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe BUILDING OPERATING EXPENSES OR COMMON AREA MAINTENANCE (CAM) (cont’d) • From a tenant’s perspective, it is important to limit the CAM expenses to those which apply to either common areas in the property or that are not specifically paid for by other tenants. It is important to keep such provisions from becoming a profit center for a landlord. • Tenants should also review the Landlord’s expenses to be sure that exclusions are properly noted. 22

23. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe BUILDING OPERATING EXPENSES OR COMMON AREA MAINTENANCE (CAM) (cont’d) In order to prevent landlord abuse, most leases will include audit rights for the tenant to review the actual operating expenses of the property. The audit provision should include: (i) the specific documentation that landlord must make available to tenant, (ii) the time period for tenant to review and, if necessary, to notify landlord of any errors, and (iii) in the event of discrepancy, the mechanism and timing for correcting the error and if applicable, having the landlord pay for the cost of the audit to the extent that landlord was responsible for any errors. 23

24. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe BUILDING OPERATING EXPENSES OR COMMON AREA MAINTENANCE (CAM) (cont’d) • “Gross Up” this provision allows a landlord to calculate the operating expenses for a building that is less than fully occupied to the amount that such expenses would have been had the building been fully occupied (or typically 95% occupied as negotiated). Although this seems at first glance to favor the landlord, it is also for the tenant’s protection. The expenses that are “grossed up” are the variable expense (i.e., janitorial, maintenance and utilities) in a building not the fixed expenses (i.e., security guards, snow removal , landscaping and insurance). 24

25. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe BUILDING OPERATING EXPENSES OR COMMON AREA MAINTENANCE (CAM) (cont’d) Building Operating Expenses or CAM Expenses typically include the following: 1. amenities (including roof decks, tenant lounges, bike rooms, fitness centers with showers, bowling alleys, and food halls); 2. janitorial services; 3. waste removal; 4. HVAC and elevator maintenance; 25

26. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe BUILDING OPERATING EXPENSES OR COMMON AREA MAINTENANCE (CAM) (cont’d) 5. pest control; 6. security; 7. fire alarm and monitoring; 8. property management (should be capped); 9. building supplies; 10. snow removal; 26

27. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe BUILDING OPERATING EXPENSES OR COMMON AREA MAINTENANCE (CAM) (cont’d) 11. electricity; 12. gas/water and sewer; 13. insurance; 14. property taxes 15. landscaping 27

28. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe INSURANCE • Insurance and indemnity provisions must be reviewed carefully both by tenant and its insurer. Typically the tenant’s insurance must include sufficient coverage for its personal property, commercial general liability insurance (typically in a range of $1 million to $3 million) and all other insurance applicable to the particular use. • Additional insured vs. named insured • Policy limits • Tenant must consult with its insurer to confirm that there are no “gaps” in coverage • Indemnity and subrogation • Consider the hazards in a specific geographic zone (hurricanes; flooding) 28

29. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe ASSIGNMENT AND SUBLEASE • Critical to maximize the ability of tenant to assign its interest in the lease or sublease any portion (or all) of the premises. • Typically this provision includes the right of landlord to approve any and all assignments and subleases. It should in each case be qualified by “reasonable” discretion. It is also a good idea to remove as much subjectivity as possible by providing that if the assignee (not necessary in a sublease since the tenant is still on the hook) has a net worth that is at least equal to the tenant’s then the assignment is approved. 29

30. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe ASSIGNMENT AND SUBLEASE (cont’d) • Since tenants that are entities may during the term of a lease be part of a restructuring, merger, buy out or other transaction, it is important to spell out exactly what constitutes an assignment and when landlord approval is required (try to limit as much as possible, one should try and avoid giving the landlord too much power over a corporate restructuring). • Wherever landlord discretion is necessary, timing should be considered as well. 30

31. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe EXCLUSIVITY, PERMITTED USES & USE CLAUSES • Tenants need to write down before even searching for space just how they will be using their space. Sounds simple, but it’s often overlooked. • Use Clauses, including exclusivity, should be clear, easy to understand by the tenant and the landlord and approved in a written initial Proposal from the leasing agent or landlord. 31

32. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe EXCLUSIVITY, PERMITTED USES & USE CLAUSES (cont’d) • An exclusivity provision limits the number and type of other potential tenants to which it may lease other premises in the shopping center. Once a landlord grants a tenant an exclusive use provision, the landlord cannot enter into a new lease that would violate this exclusive use provision. • Exclusive use clauses may prevent a tenant from subletting the lease to another tenant. However, it will not prevent a tenant in bankruptcy from assigning the leases to another tenant, as Bankruptcy Courts will disregard the “use” clause when a lease is not in a shopping center. 32

33. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe EXCLUSIVITY, PERMITTED USES & USE CLAUSES (cont’d) Examples: Sample retail: Tenant shall use the Demised Premises as a retail supermarket having all departments found in such markets, and such other departments as Tenant in its sole discretion may determine, including, but not limited to, bakery, delicatessen, video, flowers, etc. 33

34. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe EXCLUSIVITY, PERMITTED USES & USE CLAUSES (cont’d) Sample special uses: A packaged goods headquarters for a food company might have a test kitchen. These require special venting to the exterior, certain fire protection, and extra floor loading to hold the equipment. A nonprofit that trains large groups of people should look like this: The Premises are to be occupied for general office and administrative uses (the “Use”). Landlord acknowledges that the nature of Tenant’s business involves periodic meetings and trainings at the Premises of personnel not regularly officed in the Premises, and such periodic meetings and the resulting increased traffic will qualify as the permitted Use. 34

35. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe CREDIT ENHANCEMENTS • The underwriting for the tenant should be included in the LOI and the possibility that a guaranty or security deposit may be required should also be expressly stated in the LOI. • Especially when a tenant is a newer or entrepreneurial venture, it is necessary to provide some form of credit enhancement. The typical credit enhancement options are: cash security deposit, letter of credit security deposit, full guaranty, limited guaranty or good guy guaranty. • A tenant should include as much detail as possible in the LOI, including, if there is a “burn off” (i.e., the reduction or elimination of the security deposit after a period of time without any defaults). • It is also important to provide for, as applicable (i) the return of the security deposit, or (ii) the expiration of the guaranty, at the end of the lease term. 35

36. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe DEFAULTS • Most important from a tenant’s perspective is having an opportunity to cure defaults. • To the extent possible, written notification of defaults should be required. • Defaults should be divided into 2 categories, monetary and non-monetary. ✓ Monetary should be simple, i.e., if payment is not made within 5 days (most often it is 5 days sometimes a tenant can negotiate more) of when due, the lease is in “Default”. ✓ Typically, 30 days is given for non-monetary defaults. Language should also be included for non-monetary defaults that as long as a tenant is proceeding with diligence and in good faith, if the cure takes longer than the given period, it shall not be a default (usually there will be an outside date negotiated). 36

37. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe DEFAULTS (cont’d) • It is also a good idea to have a notice provision in the lease which allows for the most efficient means of providing notice (i.e., email or fax) so that there is no delay. • It is a good idea to try and add a landlord default provision which also provides tenant with remedies in the event of a landlord default. 37

38. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe REMEDIES • Important to know statutory remedies which vary by state, this should be included in the lease. • Be careful to not waive various remedies, many landlord form leases include language that if agreed to waives certain tenant remedies. • Some examples of remedies include: self-help, off-set rights, abatement rights and the ultimate is a termination right. 38

39. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe LOCATION AND VISIBILITY • Tenants in understand the concept of “location, location, location” but fail to address their lease the conditions that make the location so desirable. For retail tenants, visibility and access are a critical importance, yet fail to address this issue in their lease when issues arise such as when trees or signage obscure visibility, curb cuts in the parking lot are changed to impede access to the store, or redevelopment of the mall directs foot traffic away from the store. • Tenants are sometimes surprised to find that in many leases the landlord has reserved the right to relocate the tenant to a different space. 39

40. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe RELOCATION • The relocation provision allows the landlord to move the tenant to other comparable space in the building. This is more typical in an office lease for smaller tenants. • From a tenant’s perspective it is important that ✓ there is sufficient notice, ✓ limit the number of relocation(s) per term, ✓ the relocation premises is at least the equivalent in all material respects to the original premises, ✓ termination right if it is dissatisfied with the relocated space, and ✓ that all expenses associated with the relocation are the responsibility of the landlord. 40

41. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe DETERMINING LEASE TERM Tenants can not simply surrender the leased space to the landlord before the end of the term of the lease, without any consequences. However, many tenants fail to anticipate the need for flexibility on both the lease term and the amount of space. Some tenants, upon finding an attractive location, are inclined to tie up the space by signing a long-term lease. However, it may make more sense to sign a shorter term lease with fixed-rate renewal options. If a long-term lease is preferable, it may still make sense to negotiate early termination rights. While rights can be negotiated later in the lease term when circumstances so dictate, the tenant is rarely in a good negotiating posture as it is when initially negotiating the lease. 41

42. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe SURRENDER • The surrender provision provides the terms for returning the premises from tenant to landlord at the expiration (or earlier termination) of the lease term. • It is important to provide that the premises will be returned in the condition it was delivered, subject only to wear and tear. • From a tenant’s perspective, the less you have to remove the better but regardless, it should be clearly stated in the surrender provision. • If there are any items (furniture, fixtures, tenant improvements, etc.) which tenant wants to protect (i.e., make sure that it does not become the property of landlord upon the expiration of the lease), it should be specifically provided for in the surrender provision. 42

43. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe HOLDOVER • This provides the terms and conditions if a tenant fails to surrender the premises at the expiration (or earlier termination) of the lease term. • It is important for a tenant to try and carve-out a little cushion (i.e., if the timing for the next lease is not favorable), one way to try and do this is to attempt to negotiate to delay the effectiveness of the holdover rent (typically 150%-200% of the last month’s rent) for the first 30 days following the expiration of the lease term. 43

44. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe ESTOPPELS • An Estoppel Certificate is a legal affirmation that a tenant’s business terms are correct as outlined in the Estoppel document. • An estoppel is usually required at the time of a possible sale of the property or a refinancing. In either case, a landlord would like to have an estoppel reflect that the lease is in good standing and that there are no issues with the tenant. • Estoppels for a tenant are important because they provide an opportunity to address any lease issues, which may otherwise be ignored by a landlord (or at least not addressed as quickly as a tenant requires). 44

45. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe ESTOPPELS (cont’d) • This provision must clearly provide for ✓ the timing of the estoppel (typically 10 business days in case the signatory is traveling, or simply unavailable), ✓ the specific items that the tenant will be certifying in the estoppel, ✓ a form estoppel (typically this is the landlord’s lender’s form), ✓ what happens if the estoppel is not returned in the given time period. • It is important for a tenant to make clear in the estoppel that the estoppel does not modify any terms in the lease (rather the estoppel is intended to give a snapshot of the lease and key provisions that are not otherwise ascertainable from the lease). 45

46. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe SUBORDINATION AND SNDAS • Many leases (usually larger tenants or tenants with more leverage do not agree to this) include a provision that the lease is automatically subordinate to both mortgage financing existing at the time of the lease and to any future mortgage financing. This allows the Landlord to seek financing that is secured by the property. • From a tenant’s perspective, it is important to also include language which acknowledges that the lease is subordinate but which provides that the lender or future owner shall not disturb the lease tenancy of the tenant provided no default exists under the lease. • The Non-Disturbance Agreement allows the Tenant to continue to occupy the Property so long as the Tenant is not in default despite the property being sold, refinanced, or in default. This particular clause is important when the Tenant has agreed to subordinate its Lease to a lender. 46

47. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe SUBORDINATION AND SNDAS (cont’d) • The Attornment Agreement is when the Tenant actually acknowledges the new owner as being the new Landlord, and all aspects of the Lease including rent due remain in place. • A tenant should try and negotiate for a subordination, non-disturbance and attornment agreement to be required from existing lender and future lenders. A form of such agreement (SNDA) should be included in the lease. • Building sale velocity and elective refinancing is high. Smart tenants ensure that they have an SNDA in place to protect their interests over time. 47

48. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe REPAIR AND MAINTENANCE • In most leases the general principal is that landlord is responsible for capital repairs and repairs to the common areas of a building while each tenant is responsible for ordinary repairs and maintenance within their premises. • To avoid future confusion and possible disputes, the more specific the repair and maintenance provision in a lease the better. • There is also a connection between landlord’s repair and maintenance obligations and the operating expenses it can collect from tenants. • If the lease is a single tenant lease or has a longer term, often the obligations of tenant with regard to repair and maintenance are expanded accordingly. • The tenant should include time frames for landlord to complete (or commence) repairs and, in the event that landlord does not perform, the right to complete such repairs and off-set the cost against rent. 48

49. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe TENANT IMPROVEMENTS • The tenant improvements provision contains the terms and conditions under which tenant may make any improvements to the premises during the term of the lease. • Typically, this should specify the process for landlord approval of such tenant improvements. A tenant should try and exclude (from landlord consent requirement) any improvements which are less than a certain dollar amount and/or which do not affect any building systems or common areas. 49

50. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe TENANT CONCESSIONS • These are negotiated based on the leverage of the specific tenant and the market. It is recommended that all concessions be specifically described in the LOI. • Rent abatement – often the abatement is in the first few months of the lease term however, it can be spread out. The provision should clearly state if the abatement includes both base rent and additional rent (if applicable). • Tenant improvement allowances – another common concession is for landlord to provide tenant with an allowance (typically tied to the square footage of the premises) for improvements to the premises. Tenant should try and negotiate for as much flexibility as possible with the spending of the allowance (i.e., it may be used for plans, furniture and, to the extent there is any left over after the improvements are completed, as rent). 50

51. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe ROFO AND ROFR • Right of First Offer (ROFO) – this is a right negotiated by the tenant which requires that a landlord must first give the tenant the right to lease specific space before it is marketed to third parties. • Right of First Refusal (ROFR) – is a right negotiated by a tenant which requires a landlord to provide the tenant with an opportunity to match any offer to lease a specific space (usually adjacent to the premises) by a third party tenant. • It is important with either a ROFO or ROFR to include as much specificity in the LOI as possible. The provision in the lease should have realistic timing and should be very specific as to the terms that would apply in either case. 51

52. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe INSOLVENCY • Tenants can not simply surrender the leased space to the landlord before the end of the term of the lease, without any consequences. However, many tenants fail to anticipate the need for flexibility on both the lease term and the amount of space. • If a Tenant is unable to find a subtenant, and are forced into a bankruptcy filing, they have a right to assume and assign a lease as part of a restructuring process. • To assign a retail lease in Chapter 11, among other things, the assignee must provide “adequate assurance of future performance” (See 11 USC Section 365(b)(1)(C)) • Bankruptcy Courts will disregard the “use” clause when a lease is not in a shopping center. • Section 365(b)(3) provides, “adequate assurance of future performance of a lease of real property in a shopping center includes adequate assurance— 52

53. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe INSOLVENCY (cont’d) 1. of the source of rent and other consideration due under such lease, and in the case of an assignment, that the financial condition and operating performance of the proposed assignee and its guarantors, if any, shall be similar to the financial condition and operating performance of the debtor and its guarantors, if any, as of the time the debtor became the lessee under the lease; 2. that any percentage rent due under such lease will not decline substantially; 3. that assumption or assignment of such lease is subject to all the provisions thereof, including (but not limited to) provisions such as a radius, location, use, or exclusivity provision, and will not breach any such provision contained in any other lease, financing agreement, or master agreement relating to such shopping center; and 4. that assumption or assignment of such lease will not disrupt any tenant mix or balance in such shopping center. (emphasis added) 53

54. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe EFFECT OF BANKRUPTCY CODE CHANGES ON LEASE SALES Changes: Code limits the time to assume or reject to 7 months (210 days). First 120 days are automatic, Additional 90 days for cause, Any additional time requires the consent of the landlord. Assumption or assignment of a lease of real property must be subject to the provisions of the lease, such as use clauses. Defaults must be cured, or adequate assurance will be promptly cure, before a lease can be assumed. 54

55. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe EFFECT OF BANKRUPTCY CODE CHANGES ON LEASE SALES (cont’d) Observations: 7 months is not a lot of time, particularly for a retailer with a lot of leases. Assumption requires “curing” defaults. Thus, by forcing an “early” assumption, the landlord gets its pre-petition defaults paid quickly and paid in full, while other creditors wait for distributions under a plan. Assumption creates administrative liability for remaining rent, subject to new two year cap. 55

57. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe David Levy – david.levy@nrc.com David Levy is Vice President of Business Development for NRC Realty & Capital Advisors. NRC conducts structured sales, sealed bid sales, and auctions of all types of real estate and real estate-based businesses. NRC is distinguished for being the largest broker of gas stations and convenience stores in the U.S. The firm also provides financial advisory services with a focus on the gas station and convenience store and franchise restaurant sectors. NRC’s clients include corporations, small businesses, banks, private equity, hedge funds, non-traditional lenders, receivers, trustees, investors, and more. The firm has experience in consensual sales of premium, surplus or non-strategic assets, as well as those involved bankruptcy, restructuring, and other distressed situations. NRC has sold $2.0 billion in commercial and residential real estate assets in its 30-year history. Mr. Levy has an MBA from Miami University and holds the prestigious CCIM commercial brokerage and CAI auction designations, making him one of an estimated fewer than fifty professionals in the U.S. to have earned both. 5 7

58. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe William D. Himmelstein – bill@tagcommercialbroker.com Tenant Advisory Group (TAG) is an established licensed independent commercial real estate brokerage firm. Operated by Managing Broker William “Bill” Himmelstein, TAG specializes in commercial real estate consulting and lease negotiations for small and medium sized firms. TAG brings a passion and drive for providing best-in-class real estate representation and customer service for the corporate end-user while practicing a philosophy of integrity and accountability. Bill provides a unique entrepreneurial approach. He focuses his knowledge and unmatched experience and negotiating skills on the Chicago market but also has experience representing tenants throughout the United States. The TAG platform allows Bill to be innovative, proactive, and effective in creating unique strategic solutions for your company. Coming from a diverse background of tenant representative cultures, Bill has taken the best practices of each and created one seamless solution in the TAG approach. TAG is dedicated to building lasting relationships and striving to do what is best for our clients. Being a small, independent firm allows me to keep my overhead low and focus my efforts on getting the best transaction for my clients, regardless of their size. As your advocate and real estate consulting partner, my objective is to align your real estate planning in an efficient manner to best reach your business productivity goals. 5 8

59. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe Howard Kline – howard@hfklaw.com Howard has been involved in commercial real estate for over 39 years now as both an attorney, broker, arbitrator and now radio show host and founder of CRE Radio & TV, since December 2010. Over the years, I have worked in-house as General Counsel and Director of Real Estate for a national user of office, R &D and retail space, utilizing both my legal and brokerage licenses, General Counsel for a major regional supermarket chain that owned its own shopping centers. As an attorney, I have also practiced law as outside counsel to many major commercial landlords doing lease transactional work and lease litigation, including unlawful detainers and rent collections. As a real estate salesperson, I have served as a tenant rep in New York City and as a broker for numerous lease transactions throughout the United States. While I continue to practice law on behalf of commercial landlord’s and tenants, my passion has become the radio show. It is incredibly fulfilling to inspire others to improve themselves and reach for the stars. 5 9

60. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe Scott Weinstein – SWeinstein@fieldandgoldberg.com Scott A. Weinstein comes to the Field and Goldberg, LLC having developed a broad-based background in commercial real estate. Mr. Weinstein’s experience includes working with a fortune 500 company where he handled transaction financing and deal structures. Having served as president, counsel and co-owner of a successful real estate title company, Mr. Weinstein brings a unique perspective and understanding of the daily and ongoing business issues clients face and is able to provide practical and proactive counsel. Mr. Weinstein regularly represents commercial real estate clients in all aspects of commercial transactions including lease negotiations for landlords and tenants (including franchisees) nationwide on retail, office and industrial leases; acquisitions and sales of office, industrial and multi-family apartment buildings, and shopping centers; financing; and condominium deconversions. Admitted to practice in the State of Illinois and the U.S. District, Northern District of Illinois, Florida and New York, Mr. Weinstein received his Juris Doctor degree from Temple University Beasley School of Law and his Bachelor’s degree from the University of Maryland at College Park. 6 0

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The Commercial Tenant's Perspective (Series: Real Estate Leasing Dumbed Down)

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The Commercial Tenant's Perspective (Series: Real Estate Leasing Dumbed Down)

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