Like any other contract, the provisions of a commercial lease are negotiable. Yet, like so many contracts, commercial leases can be confusing to anyone who does not negotiate them for a living. This webinar explains many of the common provisions in a typical commercial lease (e.g. competition clauses, destruction/condemnation provisions, enforcement provisions, escalation clauses, purchase and renewal options, subletting and assignment provisions, use provision- just to name some examples) and discusses what is “market” with respect to them. Part of the webinar series: REAL ESTATE INVESTING 101 - 2022 See more at https://www.financialpoise.com/webinars/

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4. 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 that information it publishes is accurate,
Financial Poise™ makes no guaranty in this regard.
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5. Meet the Faculty
MODERATOR:
Tracy Treger, Principal- Syndicated Equities
PANELISTS:
Stacey Kruger Birndorf, Executive Vice President/Principal - Transwestern
Peter Skontos, Assistant VP - M & K Wilkow
Scott A. Weinstein, Partner - Field and Goldberg, LLC
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6. About This Webinar
Commercial Leases, Their Provisions and Pitfalls to Avoid
Like any other contract, the provisions of a commercial lease are negotiable. Yet, like so
many contracts, commercial leases can be confusing to anyone who does not negotiate them
for a living. This webinar explains many of the common provisions in a typical commercial
lease (e.g. competition clauses, destruction/condemnation provisions, enforcement
provisions, escalation clauses, purchase and renewal options, subletting and assignment
provisions, use provision- just to name some examples) and discusses what is “market” with
respect to them.
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7. About This Series
Real Estate Investing 101
Real estate has always been a popular asset class for investment. After all, as the adage
says, “they’re not making more of it.” More and more investors are turning to real estate as an
investment class.
Investors considering making an investment in real estate have a variety of choices: retail,
office buildings, industrial, raw land, and, of course residential. This Financial Poise webinar
series covers several types of real estate classes that one may choose to invest in, explaining
where to look for opportunities; how to diligence them; possible funding solutions; and best
practice for execution.
Each Financial Poise Webinar is delivered in Plain English, understandable to investors, business owners, and
executives without much background in these areas, yet is of primary value to attorneys, accountants, and other
seasoned professionals. Each episode brings you into engaging, sometimes humorous, conversations designed to
entertain as it teaches. Each episode in the series is designed to be viewed independently of the other episodes so that
participants will enhance their knowledge of this area whether they attend one, some, or all episodes.
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8. Episodes in this Series
#1: Affordable Housing/Community Improvement Investments
Premiere date: 3/31/22
#2: Investing in Residential & Multi-Family Real Estate
Premiere date: 4/28/22
#3: Investing in Commercial Property
Premiere date: 5/19/22
#4: Commercial Leases, Their Provisions and Pitfalls to Avoid
Premiere date: 6/30/22
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9. Episode #4
Commercial Leases, their provisions and pitfalls to avoid
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10. Goals of a Commercial Lease
• Leases are both transfers of possessory interests in land and contracts
• As such, a lease needs to specify both the precise rights transferred, but also provide a
roadmap for the interactions of the landlord and tenant (and other interested parties)
• Unlike residential leases, there is often no statutory law to provide a framework, so the
parties may fully negotiate all of the terms of their particular deal
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11. Provisions Applicable to All Commercial Leases
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12. Guarantees
Landlords should verify the guarantor financials and corporate structure of the Tenant and
Guarantor to understand the credit being provided.
Tenants may try to negotiate a cap or a burn off.
• Cap – the lease guaranty is capped at $x or some set number of months of rent
• Burn off – this rewards a tenant who has not defaulted over some number of years. The
guaranty may start at some capped number or the full amount due under the lease, but
then with each year of the lease without a default, the amount of the guaranty is reduced.
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13. Assignment and Subletting
• Leases generally prohibit the assignment or sublease of the lease without Landlord’s
consent.
• Landlord will want the assignment prohibition to include certain corporate change in control
transactions, and that the original tenant remains “on the hook” for payment and
performance of obligations.
• Tenant will want to make sure Landlord cannot unreasonably withhold, condition or delay
its consent.
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14. Pre-Approved Assignments and Subleases
A tenant may have certain anticipated subleases and assignments. The lease can be
structured so that Landlord consent is not required for these (notice to Landlord usually is still
required):
• Affiliates
• 3rd parties occupying less than x% of the Premises
• Clients/customers, or specific anticipated uses (i.e., a juice bar in a health club)
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15. Landlord Recapture Rights
➢ Landlord may want the right to recapture the Premises and terminate the lease if Tenant
tries to sublease or assign.
➢ Beneficial in a rising market, if Landlord seeks to repurpose or reposition the Property, or
when Landlord has large existing tenants or tenants with better credit that may want to
expand into the Premises.
If Landlord has recapture rights, Tenant will want to:
• Make sure that those rights aren’t triggered with permitted assignees
• Make sure the rights only apply to the portion of the Premises that Tenant is looking to
sublease
• Make sure that Tenant is released from all obligations under the lease to the extent of
Landlord’s recapture
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16. Insurance Requirements
➢ Insuring the risk allocated to each party must be carefully reviewed and understood.
➢ Both parties’ benefit by having their own insurance providers review the lease’s insurance
requirements and coverage parameters.
Common Types of Insurance
• Liability
• Worker’s Compensation
• Property
• Business Interruption
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17. Insurance Requirements (cont’d)
Other Insurance Considerations
• Are limits specified and reasonable?
• Deductible obligations
• Policy Terms (Notice of cancellation)
• Is tenant self-insurance an option?
• Is there a requirement for minimum rating with insurance company?
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18. Tenant Improvements and Alterations
• It is critical to spell out in detail exactly what Landlord will do. Need detailed plans.
• When will the Landlord’s work be done?
• What if landlord is late on its work? Damages? Right to cancel?
• Procedure for punchlist
• Tenant’s ability to make changes to the Premises after the initial tenant improvements will
depend on the nature of the proposed changes and the relative importance of the Tenant
to the overall property
• If subsequent changes are permitted, the Lease should address whether the Premises
must be restored to the original condition upon the expiration of the term
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19. Estoppels and SNDAs
• The Lease should require Tenant to provide a signed estoppel certificate within a
reasonable time after Landlord requests one. Tenant may seek limits on how often an
estoppel can be requested.
• Subordination and Non-Disturbance Agreements (SNDA) allow the mortgage lender
access to the Tenant’s premises under specified conditions (i.e., in connection with
Landlord’s refinance, upon a default). Tenant should request advance written notice,
limits on how often and when the lender can access the Premises, who else may or must
be present, and indemnities and protections for any trade secrets.
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20. Vacating at the End of the Term
• Holdover Rent
• Condition of Premises upon surrender
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21. “Pandemic” Provisions
• Force Majeure – new leases should address the impact of a government-mandated
shutdown
• Early Termination – These provisions were typically due to a breach by a party, casualty,
or negotiated up front at the Tenant’s request. Post-pandemic leases will also address
health and safety and/or government-imposed closures of substantial duration, as well as
changes in overall use of the property (i.e., adaptive reuse).
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22. Calculating Rent
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23. Base Rent
Most commonly a fixed amount (on a gross or per square foot basis), such as x% increase
annually
• Determine if the escalation is based on a percentage of original base rent or the prior
year’s base rent.
• Confirm that rates are in line with the market (often confirmed by a real estate broker or
database such as Costar).
• If the calculations are within the lease, confirm all dates and calculations.
Alternatively, escalations may be tied to an index, such as the Consumer Price index (CPI)
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24. Base Rent (cont’d)
Triple-net (NNN) or Absolute NNN Leases – Tenant responsible for the cost of all
maintenance, including its proportionate share of common area operating expenses (CAM),
maintenance, replacement and repair costs for roof, parking areas, and structure, and RE
taxes and insurance. In single-tenant buildings, Tenant may also be responsible for
performance of maintenance and repairs.
➢ Base rents for NNN leases are typically lower a than with other types of leases, and the
Tenant has transparency regarding the costs. However, Tenant’s ability to forecast
expenses can be challenging given the possibility of fluctuation. To address this, tenants
can negotiate caps on the amounts that can be raised annually. Typically, the caps will be
seen on fees that are controllable by the Landlord such as management fees, and not on
items outside of Landlord’s direct control such as taxes.
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25. Base Rent (cont’d)
Double-net (NN) – Landlord is responsible for roof replacements, structure (including HVAC),
and parking lot replacements and significant repairs. Tenant pays for CAM as described
above.
• Some capital charges may be amortized and billed back to Tenant over time
• Distinguish between maintenance and minor repairs, which are Tenant obligations, and
replacement
Single-Net – Tenant pays base rent plus a pro-rata share of the building's property tax
(meaning a portion of the total bill based on the proportion of total building space leased by
the Tenant); Landlord covers all other building expenses. Tenant also pays utilities and
janitorial services.
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26. Base Rent (cont’d)
Gross – Tenant pays a fixed amount of rent, inclusive of common area charges and taxes
• Amounts for operating expenses and taxes are estimated, and may increase annually by a
fixed amount or an amount tied to an index like CPI
Percentage – Tenant’s rent is based on a percentage of revenue from sales or operations
• Most common in shopping centers and operational properties like parking garages
• Lease should specify timing and content of Tenant’s reporting of sales
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27. Options and other Flexible Lease Provisions
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28. Renewal of Term
• Many commercial leases will provide Tenant options to renew or extend the lease term for
a set number of years at a set rental rate (usually tied to existing or market rates) without
having to formally commit years in advance.
• In addition to rent, renewal provisions should indicate timing for when extension notices
must be given, and any Tenant improvement allowance to accompany the extension term.
• Practically, renewals often present an opportunity to re-negotiate based on changes in the
parties’ business operations, strategic plans, and interest and market rental rates.
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29. Extension Term Rent
• Commonly based off the rent from the prior year, but may be based on current market
rates
• If prevailing market rate, specify in advance how that rate will be determined
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30. ROFR/ROFO
• Can relate to the right to lease additional space in a multi-tenant building or the right to
acquire the entire property in the event of a sale by Landlord
• ROFR = Right of First Refusal
o Landlord presents an actual third-party offer to Tenant, giving Tenant the right to
match those terms
• ROFO = Right of First Offer
o Landlord must give Tenant the opportunity to tender a proposal for the space or
property before the Landlord solicits third-party proposals
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31. Multi-Tenant Properties
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32. Common Area Charges
• It is important for parties to agree on the size of both the leased premises and the
percentage of the larger property it represents
• Understand how and when the charges will be calculated and billed back
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33. Difference Between Usable and Rentable Square Feet
• Usable square feet includes the specific area the tenant will occupy in order to do
business. For a partial-floor lease, this includes all office space plus any storage or private
restrooms. There are no exclusions for columns, recessed entries, or the like, either –
column space is fair game in the calculation of total usable square feet.
• To calculate rentable square feet, landlords use what is called a load factor (also called a
common area factor, or an add-on factor). This number is based on the percentage of
common areas found in the building. If a building has a total square footage of 100,000,
with 90,000 usable square feet (which is to say 10,000 square feet of common areas), the
load factor would equal to the rentable square feet divided by the usable square feet, or
1.11.
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34. Difference Between Usable and Rentable Square Feet
(cont’d)
➢ Building Rentable Square Feet ÷ Building Usable Square Feet = Load Factor
➢ This load factor is then multiplied by individual tenants' usable square feet to come up with
the total rentable square feet. If a company desired to lease 5,000 usable square feet, for
example, this number would be multiplied by the load factor of 1.11 to reach the number of
rentable square feet: 5,550. That’s the number on which tenant would pay rent.
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35. Relocation Provisions
Tenant should request:
• Same or higher floor/similar views or street visibility
• If corner office – same corner
• No increase in rent – even if space is larger/higher
• No increase in proportionate share of expenses
• Landlord should build out space similar to tenant’s existing space
• Landlord should pay moving costs and reasonable incidental costs (re-printing stationary,
new signage)
• As much advance notice as possible prior to relocation
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36. Parking
With retail leases, parking may be a critical factor in the success of a business. Parking is
also important to many office properties. Parking rights need to be clearly spelled out and
understood. The lease should cover:
• Rates and increases
• Total number of spaces in the facility
• Total number that will be made available to Tenant, other tenants, and the public, and
where such parking is located (i.e., reserved spots)
• EV charging stations
• What if enough parking is not provided?
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37. Asset-Specific Issues
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38. Shopping Centers
• Restrictive Uses – Larger/anchor tenants may seek provisions that limit the Landlord’s
ability to lease to a direct competitor. Such provisions should clearly identify what
constitutes a competitor, and define the extent that incidental sales of a competitive
product by a neighboring tenant are permitted. For example, a grocer may agree to a
neighboring quick service restaurant selling individually-packaged chips, but not a
convenience store.
✓ Lease should distinguish between restrictions based on existing tenancy and those
based on local ordinance (i.e., sales of cannabis, alcohol, or firearms).
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39. Shopping Centers (cont’d)
• Cotenancy and “go dark” provisions – In shopping centers with a large anchor tenant,
Tenant may request a reduction in base rent, early termination, or other relief if the anchor
tenant leaves the center or ceases operations.
• Signage
o Location – where on the Premises and the building (and any pylons, building
directories, etc.) will Tenant to be allowed to place signage?
o At whose cost will signage be put up?
o What size signage will be allowed?
o What will it look like (both content and physical appearance)?
o Landlord approval rights?
o Representations that signage will be allowed by applicable code?
o Who maintains the signage?
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40. Industrial
• Provisions relating to truck courts, including security and parking for trailers
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41. About the Faculty
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42. About The Faculty
Tracy L. Treger - ttreger@syneq.com
Tracy Treger is Principal at Syndicated Equities. Tracy helps high net worth individuals and family offices to
profitably invest in real estate. She also assists investors in identifying appropriate replacement property to
complete tax-deferred exchanges under Section 1031 of the Internal Revenue Code. Drawing upon her 20
years of legal experience in the areas of real estate, bankruptcy and corporate restructuring, finance, and
commercial law, Tracy seeks out opportunities to improve the relationship between Syndicated Equities and
its investors, to cultivate new investors, and to identify new investment opportunities and align them with
investors’ goals. Tracy joined the Syndicated Equities team in 2013 after serving as vice president and
assistant general counsel for a private REIT, where she handled all legal aspects of the company’s daily
operations and its joint venture relationships in the U.S. and Mexico. Prior to working with the REIT, she was a
partner in two large Chicago-based law firms with national and international practices. Tracy holds a B.A. in
Psychology and an M.S. in Psychological Services from the University of Pennsylvania, and a J.D. from
Chicago Kent College of Law. She actively serves on both the National Commission and the Regional Board
of the Anti-Defamation League (ADL), and she is the Board Secretary of CREW Chicago, a global
organization for commercial real estate.
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43. About The Faculty
Stacey Kruger Birndorf - Stacey.Birndorf@transwestern.com
Recognized for her tenant rep track record with headquarters, non-profits and law firms, Stacey
became Transwestern’s top producer among its newest recruits, winning the National Newcomer
Award after joining Transwestern in 2007. Stacey won Transwestern’s 2009 National Legendary
Service Award in a field of 1800 team members. An executive vice president with its tenant
advisory services group in Chicago, Stacey spent eight years at Cushman & Wakefield, winning its
Top Producer Award in 2001. During her career, she has twice been a Chicago Commercial Real
Estate Award finalist for office broker of the Year. In 2010, Stacey won the Women in Real Estate
Crystal Apple Award for mentorship and Transwestern’s Midwest award for Legendary Service.
She also won Transwestern’s 2012 “Stir It Up” award for resourceful and creative business
generation and servicing. A hallmark of Stacey’s style is “beyond the finish line” client service.
To read more about Stacey, please visit https://www.financialpoise.com/financial-poise-
faculty/stacey-birndorf/
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44. About The Faculty
Peter Skontos -pskontos@wilkow.com
Peter Skontos is an Assistant Vice President of Retail Property Management at M & J Wilkow
where he oversees property management for a portfolio of retail properties throughout the
United States.
Peter was previously in the role of Property Manager at Colliers International and Pine Tree
Commercial Realty. He brings over seven years of Real Estate experience to the M & J
Wilkow Retail team.
Peter has a Bachelor Degree in Political Science and History from Northwestern University
and obtained his MBA from University of Notre Dame Mendoza College of Business in May of
2019.
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45. About The Faculty
Scott Weinstein - SWeinstein@fieldandgoldberg.com
Scott A. Weinstein comes to 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.
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46. Questions or Comments?
If you have any questions about this webinar that you did not get to ask during the live
premiere, or if you are watching this webinar On Demand, please do not hesitate to email us
at info@financialpoise.com with any questions or comments you may have. Please include
the name of the webinar in your email and we will do our best to provide a timely response.
IMPORTANT NOTE: The material in this presentation is for general educational purposes
only. It has been prepared primarily for attorneys and accountants for use in the pursuit of
their continuing legal education and continuing professional education.
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49. About Financial Poise
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