CRECI Commercial Lease Analysis 2 — Questions and Answers
Question 1: In a percentage lease, what does the 'breakpoint' refer to?
- The rent escalation trigger date
- The sales volume at which percentage rent kicks in (Correct answer)
- The point at which a tenant can terminate the lease
- The maximum rent cap in the agreement
Correct answer: The sales volume at which percentage rent kicks in
The breakpoint is the sales threshold above which the tenant pays additional percentage rent on top of base rent.
Question 2: Which lease clause grants a tenant the right to match any competing offer before the landlord accepts it from a third party?
- Right of first offer
- Right of first refusal (Correct answer)
- Subordination clause
- Co-tenancy clause
Correct answer: Right of first refusal
A right of first refusal allows the tenant to match a third-party offer and acquire the space or property on the same terms.
Question 3: A 'gross-up' provision in a commercial lease typically benefits the landlord by:
- Increasing the tenant's base rent each year
- Adjusting operating expenses to reflect full building occupancy (Correct answer)
- Allowing the landlord to pass through capital improvements
- Permitting rent increases tied to CPI
Correct answer: Adjusting operating expenses to reflect full building occupancy
Gross-up provisions normalize operating expense calculations as if the building were 95-100% occupied, preventing low-occupancy years from understating tenant expense obligations.
Question 4: Under a triple-net (NNN) lease, which of the following costs is typically the LANDLORD'S responsibility?
- Property taxes
- Structural repairs to the roof and foundation (Correct answer)
- Building insurance premiums
- Common area maintenance
Correct answer: Structural repairs to the roof and foundation
In most NNN leases, structural elements such as the roof and foundation remain the landlord's responsibility while the tenant covers taxes, insurance, and maintenance.
Question 5: What is the purpose of an 'estoppel certificate' in commercial real estate?
- To certify tenant creditworthiness to lenders
- To confirm the current status and terms of a lease for a third party (Correct answer)
- To prevent a tenant from subletting the premises
- To document rent arrears owed by the tenant
Correct answer: To confirm the current status and terms of a lease for a third party
An estoppel certificate is a signed statement by the tenant confirming the lease terms, rent status, and any defaults, typically required during property sales or refinancing.
Question 6: A 'holdover' clause in a commercial lease addresses what situation?
- A tenant who pays rent late repeatedly
- A tenant who remains in possession after the lease expires (Correct answer)
- A landlord who delays delivering possession
- A tenant who sublets without permission
Correct answer: A tenant who remains in possession after the lease expires
A holdover clause specifies the terms — often at 150-200% of the prior rent — under which a tenant may remain after the lease term ends without a new agreement.
Question 7: Which type of rent escalation ties annual increases to changes in the Consumer Price Index?
- Stepped rent
- Index-based escalation (Correct answer)
- Percentage rent escalation
- Fair market value adjustment
Correct answer: Index-based escalation
Index-based escalation links rent increases to a published inflation measure such as the CPI, protecting the landlord's purchasing power over the lease term.
CRECI Commercial Lease Analysis 2
In a percentage lease, what does the 'breakpoint' refer to?