TABLE OF CONTENTS Volume 1 CHAPTER 1 Commercial Lease Fundamentals § 1.01 Evolution of the Modern Commercial Lease— Emergence of the “Killer Lease” .......... 1-3 [1] The Past and Today .................. 1-3 [2] Trends Impacting Commercial Leasing ......................... 1-5 [a] A Traditional Lease vs. Alternative Occupancy Arrangements— Issues to Consider ............ 1-6 [i] The Traditional Office Lease. 1-6 [ii] Alternative Occupancy Arrangements ............ 1-7 [b] Artificial Intelligence, Virtual Reality, and Augmented Reality ...................... 1-8.12 [i] VR vs. AR ................ 1-8.12 [ii] Utilizing the Technologies .... 1-8.13 [iii] Impact on Real Estate Deals ... 1-8.14 [iv] The Impact on Commercial Leasing ................. 1-8.17 [c] Pop Up Leasing ................. 1-8.18 [i] Pop Up Leases—What They Are and How They Work ... 1-8.18 [ii] Documenting the Pop Up Lease ................ 1-8.19 [d] Legalization of Marijuana: The Implications for Commercial Real Estate ................... 1-8.21 [i] Impact on Rents ............ 1-8.21 [ii] Federal Law vs. State Law. 1-8.21 xxxiii (Rel. 49) xxxiv OFFICE LEASES [iii] Other Issues Presented by Marijuana for Landlords and Tenants .............. 1-8.23 [e] Blockchain, Cryptocurrencies, Digitization and Records Retention .................... 1-8.23 [i] Introduction ................ 1-8.23 [ii] Tokenization ............... 1-8.24 [iii] Blockchain Uses and Benefits. 1-8.25 [iv] Legal and Regulatory Considerations . 1-8.26 [v] Smart Contracts ............. 1-8.27 [f] The Changing World of Commercial Real Estate ........ 1-8.28 [i] Adaptive Repurposing ....... 1-8.28 [ii] Building Communities ....... 1-8.29 [g] Looking to the Future ............ 1-8.30 § 1.02 What Is a Lease? ........................ 1-8.34 [1] Leasing vs. Owning .................. 1-8.34 [2] Lease vs. License. 1-8.34 [3] Necessity of a Writing ................ 1-8.36 [4] Elements Required for Enforceability .... 1-8.37 [5] Can Electronic Communications Satisfy the Writing Requirement Under the Statute of Frauds? ................. 1-8.38 [a] Electronic Transactions Statutes .... 1-8.38 [b] Statute of Frauds and Court Decisions .................... 1-8.39 [c] What Do UETA and E-Sign Mean? ...................... 1-8.45 [d] Best Practices. 1-8.45 [e] Conclusion ..................... 1-8.46 [6] Uniform Standards Toward a Fair Lease ........................ 1-8.47 § 1.03 Life of the Lease ......................... 1-9 [1] Signing vs. Execution ................ 1-9 [2] Contract Interval Before Possession ..... 1-12 [3] Cancellation of the Lease ............. 1-14 [a] During the Contract Interval ....... 1-14 [b] After Delivery of Possession ...... 1-15 [4] Conditional Demising. 1-18 § 1.04 Office Lease Provisions ................... 1-22.1 [1] In General .......................... 1-22.1 [2] Checklist of Lease Provisions. 1-22.5 [3] Omission of Terms ................... 1-23 TABLE OF CONTENTS xxxv § 1.05 Drafting and Analysis Basics ............... 1-24 [1] Interpreting Definition Pyramids ........ 1-24 [2] Following Lease Time Lines ........... 1-30.1 [3] Precision Drafting. 1-36 [4] Value of Lease Forms for Landlord and Tenant ....................... 1-41 [5] Long Range Planning ................. 1-43 § 1.06 Summary ............................... 1-45 CHAPTER 2 Who Is the Landlord and Who Is the Tenant? § 2.01 Who Has Authority to Sign the Lease? ....... 2-1 § 2.02 Who Is the Landlord? ..................... 2-5 [1] In General .......................... 2-5 [2] Ground Leases ...................... 2-5 [a] Ground Lessee as Landlord ....... 2-5 [b] Ground Lessor as Landlord ........ 2-6 [3] Landlord as Assemblage Owner ........ 2-8 [4] Partnership or Corporation as Landlord ... 2-9 § 2.03 Who Is the Tenant? ...................... 2-10 § 2.04 Limitations on Landlord’s Authority ......... 2-15 § 2.05 Title Insurance. 2-16 [1] The Importance of Conducting a Title Search ..................... 2-16 [2] Title Insurance Coverage .............. 2-16 § 2.06 Covenant and Representation of Authority of Tenant ............................. 2-18 § 2.07 Summary ............................... 2-19 CHAPTER 3 The Leased Premises § 3.01 Space Selection ......................... 3-2 § 3.01A Description of Demised Premises ........... 3-4 [1] The Actual Premises ................. 3-4 [2] Beyond the Four Walls of the Premises ... 3-7 § 3.02 Measurement Standards ................... 3-8.1 [1] In General .......................... 3-8.1 [2] International Property Measurement Standards for Office Buildings ....... 3-11 § 3.03 Space Maintenance and Repair Obligations ... 3-12 (Rel. 49) xxxvi OFFICE LEASES § 3.04 Compliance and Safety .................... 3-13 [1] Compliance with Laws ............... 3-13 [2] Building Safety ...................... 3-15 [a] The Old Rule: Caveat Emptor ..... 3-15 [b] Addressing Safety Issues in the Lease .................... 3-17 [i] Delivery of Premises ........ 3-17 [ii] Destruction Clause .......... 3-18 [iii] Rent Abatement ............ 3-19 [iv] Insurance .................. 3-20 [v] Safe Occupancy Clause ...... 3-21 [c] Building Safety in the Aftermath of the World Trade Center Tragedy ... 3-22 [i] A Whole New World ........ 3-22 [ii] The Importance of Having Strategies in Place ........ 3-25 [iii] Future Safety Measures ...... 3-27 § 3.05 Tenant Relocation ........................ 3-28 [1] Notice, Timing and Frequency ......... 3-29 [2] Nature of Substituted Premises. 3-30 [3] Landlord’s Payment Obligations ........ 3-31 [4] No Additional Costs for the Tenant ..... 3-32 [5] Rent Credit ......................... 3-33 [6] Tenant’s Right to Terminate ........... 3-33 [7] Conclusion ......................... 3-33 § 3.06 Office Leases in Retail Space .............. 3-35 § 3.07 Summary ............................... 3-36 CHAPTER 4 The Lease Terms § 4.01 Commencement of the Lease Terms ......... 4-2 [1] Dating the Lease .................... 4-2 [a] Contract Interval ................ 4-2 [b] Impact on Base Years. 4-2.1 [c] Impact on Escalations ............ 4-4 [d] Impact on Rental Rates ........... 4-5 [2] Possession for Occupancy Terms ....... 4-6 [3] Demising Term ...................... 4-7 [4] Rental Term ........................ 4-8 § 4.02 Abatements, Concessions and Other Inducements Offered Tenants ............ 4-14.9 [1] Initial Considerations and the Letter-of-Intent Stage ............... 4-14.9 [2] Lease Negotiation and Strategy. 4-14.10 TABLE OF CONTENTS xxxvii [3] Lender Recognition .................. 4-14.11 [4] Abatements and Concessions ........... 4-14.12 [a] Rental Abatements ............... 4-14.12 [b] Concessions for Alterations ....... 4-14.15 [c] Recapture of Abatements or Concessions .................. 4-14.15 [d] Recapturing the Cost of Tenant Improvements and Leasing Commissions ................. 4-14.16 [e] Taking Over an Existing Lease .... 4-14.21 [i] In General ................. 4-14.21 [ii] The Various Takeover Options ................. 4-14.22 [iii] Landlord Sublease or Assignment Issues ........ 4-14.23 [iv] Conclusion ................. 4-14.24 § 4.03 Phased-In Possession or Occupancy ......... 4-14.25 § 4.04 End of the Term ......................... 4-17 § 4.05 Condition of the Premises ................. 4-19 § 4.06 Summary ............................... 4-23 CHAPTER 4A Security Deposits and Other Forms of Security § 4A.01 Introduction ............................. 4A-4 [1] General ............................ 4A-4 [2] Amount of Security .................. 4A-6 [a] Security Initially Required ........ 4A-6 [b] Changing the Amount of the Security ..................... 4A-7 [3] Transfer of Security .................. 4A-10 [4] Assignment of Lease ................. 4A-12 [5] General Tenant Concerns .............. 4A-13 [6] Landlord Issues—Treatment of Security Deposits in a Tenant’s Bankruptcy .... 4A-14 § 4A.02 Kinds of Security ........................ 4A-17 [1] Introduction ......................... 4A-17 [2] Cash Security ....................... 4A-17 [a] Segregation of Cash Security ...... 4A-17 [b] Interest and Earnings on Cash Security ..................... 4A-19 [c] Cash Security—The Bankruptcy Problem ..................... 4A-20 [3] Letters of Credit ..................... 4A-20 (Rel. 49) xxxviii OFFICE LEASES [a] What Is a Letter of Credit? ........ 4A-20 [b] Treatment of Letters of Credit in a Tenant’s Bankruptcy ......... 4A-22 [c] Issuing Bank Failure ............. 4A-25 [i] General ................... 4A-25 [ii] Role of the FDIC ........... 4A-26 [iii] Landlord Steps to Mitigate Risk .................... 4A-27 [d] Standby Letters of Credit Versus Cash Security Deposits in a Tenant Bankruptcy ............ 4A-30 [i] Advantages ................ 4A-30 [ii] Disadvantages .............. 4A-30 [e] Letters of Credit—General Information .................. 4A-31 [i] Common Forms of Letters of Credit ................ 4A-31 [ii] The Parties Involved ......... 4A-31 [iii] Governing Codes ........... 4A-31 [iv] Irrevocability/Modification of Letter of Credit ........ 4A-32 [v] Conditions to Payment ....... 4A-33 [vi] Term of Letter of Credit/ Evergreen Letters of Credit ................ 4A-34 [vii] Transferability .............. 4A-34 [viii] Presentation, Governing Law, Jurisdiction and Venue, and Enforcement .......... 4A-35 [ix] Partial Drawings ............ 4A-36 [x] Notice of Draw ............. 4A-37 [xi] Sample Lease Provision ...... 4A-37 [xii] Comment .................. 4A-40 [4] Guaranties .......................... 4A-40 [a] Introduction ...................