Silver Law Group Beverly Hills, CA
 E-Alert: Commercial Real Estate Law and Business
Silver Law Offices Inc.
2029 Century Park East · Suite 1400
Los Angeles, California 90067
310.684.3611  fax 310.464.6961
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Should I stay or should I go in 2012?

Tenant Side Leasing Tips for a Tenant Favorable Market

Extending the term of your lease: time to negotiate!

This time of year many of us are deciding our office space needs for next year and beyond.  So who ya gonna call? Silver Law Offices? Actually no. Your first call should be to a "tenant rep" office broker (email me for referrals). These folks do nothing but represent tenants in office lease transactions. So they have great market information, don't represent landlords (to avoid conflicts) and likely can tell you about other tenants' leases in your building. Best of all they get paid by your landlord, not you!  They'll arm you with the information you need and advise you so that you can go to your landlord from a position of strength and knowing your alternatives. And who do you call next? Silver Law Offices. We can review your lease and tell you if there are provisions which could end up giving you headaches (or aches in the wallet) or crucial terms which you need to have added to your lease. Then you tell us your priorities and how hard to negotiate and together with your broker we'll go to work for you (so you can stay focused on your work). A whole lot has happened in the office market since late 2007 and all of it favors you, the tenant. Your landlord wants to retain you as it will be very costly to lose you (lost rent, cost to get the space ready to lease, and free rent, legal expenses, brokerage fees and tenant improvement allowances on a new lease), so the time to get what you want is when your lease is 6 months prior to expiring. And if you have an option to extend, remember that it is just an "option" and need not be exercised to start negotiations: just call your landlord or their agent/manager and tell them you are interested in renewing the lease, but just not at that high option rent . And shop for space at the same time as you'll get the best deal at your current space if the landlord knows you are looking around and have other good options.

Subleasing without being overexposed to the risks of sublandlord master lease default.


Master landlord consent is needed for almost every office sublease; that much we all know. But what happens when you're 6 months into your sublease, you've spent $15k moving the office (and suffering all the hassles of moving), and your sublandlord goes belly up and stops paying its rent to the master landlord? Without a Recognition Agreement, or obtaining some agreement of recognition and non-disturbance in the master landlord's written consent to the sublease, you are, as they say in latin, "S-O-L" (the middle word being "outta"). When you negotiate that sublease, you need to demand that from the start - when negotiating a letter of intent for sublease; because if you ask for it later it'll be an uphill battle with much of your leverage gone. But why would a landlord agree to keep your sublease in place even after your sublandlord takes your rent and runs off to Gstaad? Because landlords know that subleases are actually in their interest; they help tenants pay their full rent when business is hurting and paying full rent on excess space is extra painful. At a minimum you need to have the right to stay in your space for 90 days following termination of the master lease; this gives you and the master landlord time to either negotiate a new direct lease or to find another space and move. And this right should not be conditioned on you having to cure any sublandlord default; you don't want to have to pay rent twice (once to your sublandlord who took it and is halfway to Lugash by now and then again to the master landlord t make up for what they weren't paid by your deadbeat sublandlord!).

Tenant Improvement Allowance: When Tenants get to ask "what if you don't pay me?"

Many of the main issues we face in lease negotiations focus on landlord remedies if the tenant doesn't pay rent. Landlords suffer from a distinct lack of empathy; from their perspective the lease is all about "what happens if I don't get paid?" But what about tenants' concerns? Aren't they taking risk when they move to a new office or store? They will be incurring the expense of moving and tenant improvements and will be expecting their new landlord to keep the building and common areas in good shape, among other reasons, so that their clients and employees don't shun visiting and going to work. And if the tenant is receiving financing of their tenant improvements through a tenant improvement allowance ("TIA") by the landlord then they are gambling that the landlord, not unlike any other financing source, will perform and pay. But a landlords' obligations to pay under TIA's aren't usually evidenced by a promissory note separately enforceable from the lease; instead, they are usually contained in the lease itself. And almost every lease is (i) silent with regard to a landlord payment default, (ii) recites that if a landlord breaches the lease it gets 30 days "or such additional time as is reasonably necessary" to cure and (iii) provides that tenant has no self help remedy of rent offset. As such, a tenant's only remedy is to sue for nonpayment of TIA. And if landlord is insolvent/bankrupt and/or the building has gone to a receiver or a  lender or purchaser at foreclosure sale, then the tenant could be faced with the awful prospect of having to continue paying rent and have no recourse with regard to the initial landlord having failed to pay the TIA. That's why you need the "limited right of offset" with respect to unpaid TIA. You need this right in the Lease and you need it in the SNDA (subordination non-disturbance and attornment agreement) from landlord's lender. But how hard you'll fight for this (and whether in the lease is enough for you or whether you have to have it in an SNDA as well) will depend on your comfort with the financial strength of the landlord and how much equity they have in the building.

© 2010 Silver Law Offices Inc. All rights reserved. This email and its content is intended for general information purposes only and should not be construed as legal advice or legal opinions on any specific facts or circumstances.