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Avoid Oversights in Lease Amendments
The following scenario frequently occurs: A multi-tenant office building landlord requests its counsel to take a quick look at a proposed two-paragraph lease amendment that the landlord drafted itself. The landlord explains that the tenant has agreed to extend the lease term and establish a new base rental rate for the extended term. Very simple and straightforward, correct? In reality, if the landlord and tenant had signed the two-paragraph lease amendment, they would have made some potentially costly errors, overlooked several issues and bypassed an opportunity to capture more comprehensive provisions that, at a minimum, should have been considered for inclusion. This article will help attorneys avoid some common oversights when working on lease amendments and identify some opportunities that should be assessed during the amendment-drafting phase.
What was missing from the landlord's initial draft? From the time that the tenant first moved into the building several years ago, the standard of measurement for office buildings utilized in the local market had changed, and the square footage of the premises and building were different under the new standards. Accordingly, the tenant's proportionate share of building operating expenses, taxes and insurance should be updated along with the square footage. Similarly, some buildings use a base year methodology for calculating and passing through building operating expenses, real estate taxes and insurance. If the base year has changed, the lease amendment should reflect the new base year.
In some instances, building ownership may have changed hands (or the owner or manager may have relocated) and/or a new mortgage lender may have an interest in the building since the lease was executed initially (or last amended). Commonly, upon changes in ownership or mortgage lenders, the tenant will have been notified of the changes and estoppel certificates and/or subordination agreements will have been secured. However, it is not a bad idea to use the lease amendment to update the notice provision and confirm where rent payments should be made on a going-forward basis.
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