Leasing
Lease Fundamentals
Candidates must know the anatomy of a commercial or residential lease: parties, premises, term, rent and escalations, security deposit, use clause, maintenance and repair obligations, alterations, assignment and subletting, default and remedies, and surrender. Understand lease types - gross, net (single, double, triple), percentage rent, and graduated leases - and how each allocates operating expenses, taxes, and insurance. Know key clauses: escalation, operating expense pass-through with base year or expense stop, right of first refusal, exclusivity, and estoppel.
Traps to watch
- Gross vs. net: in a gross lease the landlord pays operating expenses from rent; in a triple-net lease the tenant pays its share of taxes, insurance, and CAM. Questions often invert these.
- Base year vs. expense stop: a base-year clause passes through increases over the base year; an expense stop passes through amounts above a fixed dollar figure. They are not identical.
- Assignment vs. sublease: assignment transfers the entire remaining term and the assignee privity with the landlord; a sublease creates a new tenant-landlord relationship with the original tenant.
- Rentable vs. usable area: the load factor converts usable to rentable; pass-throughs are typically based on rentable share.
Rule of thumb
Tenant's pro-rata share = tenant rentable area ÷ total rentable area. Apply that share to recoverable expenses above the base or stop.
Worked example
A tenant leases 10,000 rentable square feet in a 100,000-square-foot building, giving a 10% share. Recoverable operating expenses are $600,000; the base-year amount is $540,000. Recoverable increase = $60,000 × 10% = $6,000 billed to the tenant. If the lease instead had a $5.40 per-square-foot expense stop, the calculation would use the stop, not the base year.