Major Issues in Real Estate Transactions

It is incumbent upon general counsel to have a full understanding of the major issues involved in an office lease. This article identifies those issues, and it offers suggestions and negotiating strategies from the tenant’s point of view.

The actual delivery date of the premises is important, especially if the tenant is nearing the end of its existing leased, an the lease should clearly provide for an anticipated delivery date. If the landlord misses the anticipated delivery date, then the rent should be abated.

The subordination, non disturbance and attornment [formal acknowledgement of transfer] agreement provides that the tenant subordinates its lease to the lender’s mortgage. If the tenant does not receive a SNDA, then the lender has the right to terminate the lease if it succeeds to the landlord’s interest. For larger deals, this is an unreasonable risk. Construction delays at the new premises can force a tenant to holdover. To mitigate the damages resulting from a holdover, the tenant should insist that holdover rent be calculated on a per diem basis instead of monthly.

Usually, the general counsel’s biggest concern is whether the lease can be assigned to a successor without the landlord’s consent. The lease should provide that corporate and related party transactions do not require the landlord’s approval. All that is required  is notice to landlord.

Landlords will insist on a net worth test for the new entity. Such a test is not unreasonable and tenants routinely agree to it.