CRECI Lease Management and Execution 2 — Questions and Answers
Question 1: A tenant in a commercial lease wants to assign the lease to a buyer of their business. The lease requires landlord consent. The landlord refuses without providing any reason. Which legal standard most commonly protects the tenant?
- Landlord may refuse for any reason
- Landlord must not unreasonably withhold consent (Correct answer)
- Tenant may assign freely after 30 days notice
- Assignment requires a court order if landlord refuses
Correct answer: Landlord must not unreasonably withhold consent
Most commercial leases and courts require that a landlord not unreasonably withhold consent to assignment when the lease contains a 'consent not to be unreasonably withheld' clause.
Question 2: What is the primary purpose of a subordination, non-disturbance, and attornment (SNDA) agreement in commercial leasing?
- To allow the tenant to sublease without landlord approval
- To protect the tenant's leasehold rights if the lender forecloses on the property (Correct answer)
- To establish the priority of the tenant's security deposit claim
- To require the landlord to maintain the property in good condition
Correct answer: To protect the tenant's leasehold rights if the lender forecloses on the property
An SNDA protects the tenant by ensuring their lease remains in effect even if the landlord's lender forecloses, provided the tenant is not in default.
Question 3: Under a gross lease, which party is typically responsible for paying operating expenses such as property taxes, insurance, and maintenance?
- The tenant pays all operating expenses
- The landlord pays all operating expenses (Correct answer)
- Both parties split operating expenses equally
- Operating expenses are paid by a third-party property manager
Correct answer: The landlord pays all operating expenses
In a gross lease, the landlord receives a fixed rent and is responsible for paying all or most operating expenses out of that rent.
Question 4: A commercial lease has a 'go-dark' provision. What does this clause permit the tenant to do?
- Operate the premises only during nighttime hours
- Cease business operations while continuing to pay rent (Correct answer)
- Terminate the lease if the property loses power
- Reduce rent if neighboring anchor tenants leave
Correct answer: Cease business operations while continuing to pay rent
A go-dark provision allows a tenant to stop operating their business at the location while still fulfilling their rent obligations under the lease.
Question 5: Which lease clause gives the tenant the right to match any competing offer the landlord receives for additional space in the building?
- Right of first refusal (Correct answer)
- Expansion option
- Preferential right of renewal
- Co-tenancy clause
Correct answer: Right of first refusal
A right of first refusal (ROFR) requires the landlord to offer the tenant the opportunity to lease additional space on the same terms as an outside offer before accepting it.
Question 6: A tenant's lease contains an estoppel certificate provision. When requested by the landlord, what must the tenant confirm in an estoppel certificate?
- The tenant's financial statements and credit history
- The current lease status, including rent amounts, lease term, and any known defaults (Correct answer)
- The tenant's insurance coverage amounts and policy numbers
- The tenant's future plans for the leased premises
Correct answer: The current lease status, including rent amounts, lease term, and any known defaults
An estoppel certificate is a signed statement by the tenant confirming the current status of their lease, which landlords often need for refinancing or property sales.
Question 7: What is the key characteristic of a percentage lease commonly used in retail commercial properties?
- Rent is set as a percentage of the property's assessed value
- Base rent is supplemented by a percentage of the tenant's gross sales above a breakpoint (Correct answer)
- Rent increases by a fixed percentage each year regardless of sales
- The tenant pays a percentage of the landlord's mortgage payment
Correct answer: Base rent is supplemented by a percentage of the tenant's gross sales above a breakpoint
A percentage lease requires the tenant to pay a base rent plus a percentage of gross sales once revenues exceed a natural or artificial breakpoint.
CRECI Lease Management and Execution 2
A tenant in a commercial lease wants to assign the lease to a buyer of their business.
The lease requires landlord consent.
The landlord refuses without providing any reason.
Which legal standard most commonly protects the tenant?