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When a taxpayer commences a real property tax review proceeding, his/her focus is on the bottom line — the amount of the real estate taxes paid on that property and getting them reduced. These bottom-line taxes are, however, the end product of a multistep process that ultimately results in the tax bill issued for that property.
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Office leases typically provide that the landlord will furnish services without additional charge, including heat, ventilating, and air conditioning (HVAC) during 'normal business hours.' Many leases specifically denote such hours, sometimes including up to 6:00 p.m. on weekdays, and also Saturday mornings. These hours are usually not controversial, but certain tenants sometimes negotiate the specific hours. The potential problem for tenants is that many leases state that a tenant will be billed for overtime HVAC (or other services) without specifying a rate for such services.
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The ensuing softening of the commercial real estate market fueled by massive corporate restructuring, downsizing and changes in geographic locations has led to a flood of sublease space being placed on the market. As recently reported in the National Real Estate Investor, there are 124 million square feet of office space being offered for sublet today, which equates to approximately 25% of total available office space nationwide. <i>See</i> Parke Chapman and Matt Valley, 'The Sublease Overhang: A 124 Million Square Foot Headache', National Real Estate Investor (February, 2003). In order to mitigate the cost of leasing unused space, companies are subletting, or similarly, positioning their excess space so that a favorable lease termination fee or a lease buy out can be negotiated with the existing landlord. As tenant representatives, we are often retained by companies to assist with their disposition efforts. We recommend that the following subleasing strategies be considered for mitigating a company's remaining leasehold obligation effectively.
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Highlights of the latest commercial leasing cases from around the country.
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Most modern leases contain one or more paragraphs addressing the use of the premises. Pursuant to these paragraphs the landlord and tenant agree, among other things, that the tenant is entitled to use the leased premises for one or more specified uses, an 'Allowable Use.' The parties may also agree that certain uses, 'Obnoxious or Prohibited Uses,' would be inappropriate for the tenant space or for any other space in the shopping center occupied by another tenant. In shopping centers where one or more tenants are acting as the initial anchor, that tenant will frequently require the landlord to agree not to let any other occupant have the right to use any portion of the center for a specified use (an 'Exclusive Use'). Sometimes the exclusive is coterminous with the anchor tenant's Allowable Use, but frequently it will be more narrowly drafted to include only a portion of the Allowable Use. In shopping centers where the initial anchor is a grocery store or other readily definable use and where the tenant has significant bargaining power, this process can be quite simple and, with the use of a well-drafted declaration of restrictions, can be applied with relative ease.
It's hard to imagine financing construction on a premises in which you have no legal interest. However, in order to meet construction schedules, opening date projections and cash flow targets, a tenant must sometimes consider whether it is willing to commence construction without having an executed lease or agreement in place. While this decision may expose the tenant to considerable risk, under certain circumstances both the landlord and the tenant may be willing to proceed with construction, absent the existence of an executed lease or agreement. In order to allow a tenant to construct its space prior to executing a lease for the space, a landlord and a tenant would be wise to enter into an Early Access Agreement providing for certain understandings between the parties, prior to the time that the lease or agreement is executed. The Early Access Letter need not be a long or complicated document, but should provide for certain crucial understandings to establish the rights and protect against the liabilities of each party, as well as to create an understanding of the relationship between the parties. At a minimum, the Early Access Letter should cover the following topics: i) plans; ii) insurance; iii) indemnification; and iv) what happens if a lease is not executed by the parties; and v) construction rules and regulations.
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Recent downturns in the economy have increasingly found retail and office tenants in the position of having to seek rent relief in varying degrees from their landlords in an effort to overcome short-term financial difficulties. While the landlord finds unpalatable the prospect of reducing a rental income stream to which it has become accustomed, the prospect of having a vacancy in a shopping center, with its attendant adverse effect on neighboring tenants, as well as the additional costs involved in replacing the tenant through the payment of brokerage fees and lease inducements, may be even more unpalatable.
Highlights of the latest commercial leasing cases from around the country.
Real estate lawyers have recently been reminded of the importance of carefully crafting 'waiver of subrogation' and 'release of liability' provisions in leases. For instance, in a recent New York case, <i>The GAP, Inc. v. Red Apple Companies, Inc.<i>, 282 A.D.2d 119 (N.Y. App. Div. 2001), such express clauses saved the landlord from liability to its tenant's insurance company; unfortunately, the provisions did not relieve the landlord from responsibility for the cost of its tenant's insurance deductible — a million dollar mistake.
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Sophisticated parties engaging in complex real estate transactions customarily provide for rent abatement provisions in commercial office leases in order to liquidate damages where delays in landlord's construction would lead to a breach of the contract. That is what occurred in <i>Bates Advertising USA, Inc. v. 498 Seventh, LLC,</i> 291 A.D. 2d 179 (1st Dept. 2002). In a decision that threatened to have a profound impact on commercial office leases in New York City, the New York State Supreme Court, New York County, a trial level court, held a typical rent abatement clause unenforceable by ruling that it was not a liquidated damages provision, but instead, an unenforceable penalty. The tenant appealed, and in a decision that saved the contractual expectations embodied in many similar commercial leases, the Appellate Division's First Department reversed, finding that nothing in the rent abatement provision created an unenforceable penalty or forfeiture, or violated the purpose of the liquidated damages rule.