ISSUE #1: Purpose of a Fictitious Outside Date Six certainties of - PowerPoint PPT Presentation

ISSUE #1: Purpose of a “Fictitious Outside Date” • Six certainties of leases: – parties – premises – commencement date – term – rent – material terms not incidental to Landlord and Tenant relationship • Exact commencement date may not be known when lease is executed (e.g. when premises are under construction) • Fixed outside date (“not later than…”) ensures legal certainty • Requires agreement on appropriate date

ISSUE #2: Gross- Ups • Amount of square footage upon which tenant pays rent, over and above its actual useable space • Part of BOMA definition of “Rentable Area” • $ per sq. ft. is artificially reduced

Issue # 3: Why Do Some Leases Allow Landlords To Terminate In Lieu Of Consenting To A Sublease While Others Do Not? • Landlord's Leasing Plan • Needs of other tenants • Financial Considerations

ISSUE #4: What is the Covenant of Quiet Enjoyment? • Implied covenant that Tenant can possess and use the premises without interference from Landlord • May be restricted or qualified by express terms (e.g. subject to other terms of the lease and to Tenant’s performance) • Includes protection against interference by parties claiming by, through or under the Landlord. Exception: Prior registered encumbrances • Examples of breach by Landlord: – failure to maintain premises in habitable condition (if required by lease) – intimidation / threatening conduct

ISSUE #5: Subordination, Attornment & Non-Disturbance • Subordination – tenant’s leasehold interest does not have priority over mortgage • Attornment – tenant agrees to recognize foreclosing lender as its Landlord • Non-Disturbance – lender contractually agrees to honour tenant’s lease

Issue #6: Why Or When Does A Default Cause Three Months Rent to Accelerate • Bankruptcy and Insolvency Act

ISSUE #7: Role of Brokers and Lawyers • Yin and yang (opposing yet complementary) • Different skill set • Brokers have – detailed market knowledge – property and cost comparisons • Lawyers can address myriad of legal and risk related issues • Major lease transactions can involve lawyers and brokers from start to finish

ISSUE #8: Demolition Clauses • Landlord uses where project could be torn down or substantially renovated • Dangerous provisions for tenant where location is critical • What is the trigger point?

Issue #9: Why Do Some Leases Have Security Interests And Others Do Not? • Tenant Balance Sheet • Tenant Improvement Allowance • Exclusions: Inventory

Issue #10: When Can A Clause Stipulate A Penalty For Non- Performance? • Genuine pre-estimate of damages • Impossible to determine otherwise • Relief from forfeiture/penalty

ISSUE #11: Forfeiture and Waiver of Forfeiture • Forfeiture: deprivation of a right in consequence of non-performance of some obligation (i.e. right to terminate lease for Tenant’s default) • Waiver of Forfeiture: unequivocal act of Landlord confirming existence of lease after Landlord has knowledge of breach • Examples: acceptance of rent by Landlord which accrues after it becomes aware of breach, or exercise of power of distress for such rent : Negotiation of resolution with Tenant • Not limited to acts occurring after notice of default issued by Landlord • Solution: settlement discussions to take place on a formal “without prejudice” basis : Elect to terminate, then discuss new lease terms

ISSUE #12: Fixtures, Chattels and Tenant Improvements • Fixtures – high degree of affixation – intent is that they remain with building • Chattels – affixation is minor – can be removed without damaging building – tenant wants to retain • Tenant Improvements – generally benefits building and can not be removed • Trade Fixtures – significant benefit only to Tenant – usually removable with obligation to repair damage

Issue #13: What Is The Difference Between Bankruptcy And Insolvency And Default? Don’t They All Mean The Same Thing, i.e. a Tenant In Trouble? • Financial/monetary default • Covenant default

Issue #14: What Does Reasonable Wear And Tear Mean? • Office Lease: Paint and Carpet • Retail Lease: Merchandising Plan/Consumer Demands • Residential Leases: Carpet Cleaning