Commercial Lease Analysis Flashcards

In a commercial lease, an 'assignment' differs from a 'sublease' in that an assignment:

Answer: Transfers all of the tenant's rights and obligations to a new party

An assignment transfers the entire leasehold interest to an assignee, whereas a sublease creates a new landlord-tenant relationship between the original tenant and subtenant for part of the term or space.

Which metric is most commonly used to evaluate the investment quality of a commercial property anchored by NNN leases?

Answer: Capitalization rate (cap rate)

Capitalization rate, calculated as NOI divided by purchase price, is the standard valuation metric for income-producing commercial properties including NNN-leased assets.

A 'force majeure' clause in a commercial lease protects parties from liability when lease obligations cannot be met due to:

Answer: Events beyond the parties' control such as natural disasters or government orders

Force majeure excuses performance obligations when extraordinary events outside a party's control — such as floods, fires, or government shutdowns — prevent compliance with lease terms.

Under BOMA 2017 measurement standards, which area measurement is used as the basis for calculating rent in most office leases?

Answer: Rentable area (RA)

BOMA 2017 defines rentable area as the occupant area plus a proportionate share of building amenity and service areas, and this figure is the standard basis for office lease rent calculations.

A landlord's 'recapture right' in a subletting or assignment clause allows the landlord to:

Answer: Take back the leased premises if the tenant seeks to sublet or assign

A recapture clause gives the landlord the option to terminate the existing lease and deal directly with the proposed subtenant or assignee rather than approving the transfer.

Which of the following is a key distinction between a 'gross lease' and a 'net lease' from a landlord's perspective?

Answer: Under a gross lease, the landlord bears the risk of operating expense increases

In a gross lease, the landlord pays operating expenses from the fixed rent received, exposing the landlord to the risk that expense increases will erode net income.

A 'renewal option' at 'fair market rent' (FMR) in a commercial lease means the renewal rent will be:

Answer: Determined by an appraisal or negotiation process at time of renewal

A FMR renewal option requires the parties to determine the prevailing market rent at the time of renewal, typically through negotiation, appraisal, or a binding arbitration process.