Commercial Lease Due Diligence in Real Estate Acquisitions: Key Issues and Best Practices (2017)
Presented by Strafford Publications, Inc.
Leases are the contractual basis for rental income and hence the value of commercial property. Lease review should confirm that rental terms and expense allocations are consistent with the purchaser’s economic underwriting of the property and the seller’s rent roll and operating statements, and confirm that all leases (including amendments) are properly executed and are in fact assignable to the purchaser (and any required assignment documents are properly executed by the seller and tenant). Tenant estoppels should in turn be consistent with the leases and address other matters that may not be adequately covered in the leases.
Counsel must be able to identify and interpret various lease provisions which set forth the obligations of the landlord and the tenant and may effect the continued viability of a lease and operation of the property. These include buildout and other obligations of the landlord which the purchaser will assume, purchase options or rights of first refusal, termination rights, “go dark” provisions, tenant expansion rights, co-tenancy provisions, use and noncompete restrictions, lease guaranty obligations, and casualty and condemnation provisions. Counsel must also review any SNDA provisions contained in the lease and understand how these provisions (or their omission) will be viewed by lenders.
The panel will prepare real estate counsel to evaluate lease provisions that can have a significant impact on the purchaser of commercial real estate. The panel will discuss tenant buildout, expansion rights, purchase options, co-tenancy, “go dark” noncompete, lease guaranty and other provisions, and the importance of tenant estoppels.
Key issues include:
- What are best practices for confirming the income and expenses of the property?
- What remaining tenant buildout and other obligations will the purchaser be taking on as successor landlord?
- Do any tenants have termination, purchase option, “go dark,” or other rights affecting the lease or the operation of the property?
- Can the purchaser comply with all use restrictions, noncompete, co-tenancy, and parking requirements contained in the leases?
- Are any leases guarantied and are those guaranties assignable?
CLE credit available.