In the Spotlight: Conducting Leasing Due Diligence? Watch for These Nine Lease Provisions

1) Completeness of Lease Documentation. A review of the lease documentation received from the vendor often reveals that there are missing pages and unsigned or missing amendments and extension agreements. Since the purchaser needs an accurate snapshot of the documents forming the entire lease, the vendor should be asked to explain any gaps in the documents and provide any missing items. The information contained in estoppel certificates, which tenants will be asked to sign to confirm financial and other terms of their leases, should match the information contained in the leases. If the purchaser waits until after the due diligence date or the closing date to investigate gaps or discrepancies in lease documentation, it will likely be too late to do anything about it.

2) Outstanding Tenant Inducements. Unexpired free rent and rent abatement periods, payment of leasehold improvement allowances and completion of outstanding landlord's work, if not performed by the closing date, can all affect the purchaser's return from the transaction. If not adjusted for on closing, the purchaser may be responsible for discharging any such outstanding obligations out of its own pocket.