Commercial Real Estate 101 – Chapter 4: Additional Rent (2 of 2)

A lease abstract is a document that summarizes specific, key information from a lease agreement. Leases can be lengthy documents with confusing legalese. Lease abstracts allow users to easily reference and review fundamental lease terms to ensure that both the tenant and landlord are in compliance with applicable obligations, timeframes, etc.

This series will go through a typical lease abstract and explain the various terms and what is important for a tenant to understand.

Landlord’s Insurance

  • Insurance carried by landlord to protect against loss or damage to the subject property.
  • What’s important – Lease/rental structure, what is/is not covered. Insurance requirements and coverage may very depending on ownership structure, i.e. fee simple vs. condo and/or rental structure, i.e. full service vs. triple net lease.

Tenant’s Insurance

  • The types of coverage and amounts required of tenant. Generally include commercial general liability, business interruption, worker’s compensation, etc. Tenant is typically required to include landlord, mortgagees, etc. as additional insureds.
  • What’s important – Types of coverage and amounts may vary based on landlord requirements, tenant’s use, negotiation, etc.

Liability

  • Insurance coverage protecting against financial loss due to property damage or personal injury by tenant.
  • What’s important – understanding what is covered. Level of coverage may be a point of negotiation.

Property

  • Insurance coverage protecting tenant’s business property in the case of damage or loss.
  • What’s important – understanding what is covered and in which cases, i.e. gross negligence.

Rental Loss

  • Insurance coverage protecting landlord’s loss of rent in the case of fire or casualty damage which renders the subject property untenantable.
  • What’s important – While this insurance covers landlord the cost is charged to tenant under operating expenses.

Utilities

  • Services provided to the subject property such as electricity, gas, water, sewage, telephone/internet.
  • What’s important – In full service leases, utilities are included under the basic annual rent/tenant’s base year. In some modified gross leases and in all triple net leases, tenant is responsible for paying utility charges directly to the service provider.

HVAC

  • Heating, ventilation, and air conditioning.
  • What’s important – Power source, i.e. gas, electric, etc., responsibility for maintenance, repair, and replacement, party responsible for providing services (landlord or tenant), hours of operation. In full service leases, charges for HVAC services are included in the basic annual rent/tenant’s base year under operating expenses. In modified gross and/or triple net leases tenant may be responsible for maintenance, repair, and replacement. Landlord should be required to covenant that all building systems are in good working order. Many industrial spaces are not conditioned (heat only).

Tenant Repairs/Maintenance

  • Lease provision detailing tenant’s responsibilities with regards to the leased premises and subject property. Tenant’s responsibilities generally include keeping the lease premises and its equipment and fixtures in good order and returning to landlord as such, reasonable wear and tear excepted, and repairing any damage caused by tenant or its agents.
  • What’s important – Understanding which fixtures/equipment are tenant’s responsibility, i.e. HVAC units.

Landlord Repairs/Maintenance/Services

  • Lease provision detailing landlord’s responsibilities regarding its ownership and operation of the subject property. Generally lists services that landlord is required to provide, i.e. heat and air conditioning, elevator service, janitorial services, etc. Also describes the portions of the subject property that landlord is responsible for maintaining and/or repairing, i.e. parking lot, bathrooms, etc.
  • What’s important – understanding cases in which landlord is exempt from repairs, i.e. damage caused by tenant; hours that services are provided; terms governing interruption of services, etc.

aid2242364-v4-728px-Create-a-Commercial-Lease-Step-2-Version-2

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s