County and State of property must be included.
The description should be the street name of the property and suite number when available. A descriptive name such as "Plaza Commons," "San Jose Towers," etc. should only be used when no proper street address is available.
The square footage should be given in rentable square feet. Campuses/Labs negotiating with landlords who insist upon useable or assignable square footage measurements for leases under Regental authority should include both the rentable square feet and the useable/assignable/other square foot measurements and the conversion factor. The Space Lease Financial Summary comparables provided by the campus should use a rentable square foot measurement for all comparables, or a conversion factor should be provided.
A reference to Exhibit A must be provided. (See comments under Exhibit A.)
The percentage of the building which will be leased should be included. If the entire building is leased, the percentage should be included as 100%. The tenant's right to inspect the landlord's books should include the right to inspect the floor plans in order to verify the accuracy of the measurements. Particularly with older buildings, the reorganization of space over the years as tenants come and go may have caused small variations, which, when cumulatively taken, can result in major discrepancy that may be unfair either to landlord or tenant.
A reference to Exhibit
B must be provided. A lease without an appropriate Exhibit B will not be accepted
by RESG. (See comments under Exhibit B.)
1.2 Non-Exclusive Use Areas.
The defined common
areas should be noted here. In the case the Premises are contained in a Building
that is part of a larger Project (complex of several buildings), the common
areas should be defined so as to exclude excessive common areas unused by
1.3 Parking Areas.
The number of parking
spaces should be shown on Exhibit A and the number of parking spaces for University's
exclusive use should be included in this section. The total number of parking
spaces shared in common with other tenants should be included. (See comments
in Addendum 1.)
1.4 Area of Premises.
The tenant's share of costs is almost always pro-rated, based on the size of the leased premises. The method of measuring the space should be the same for both the leased premises and the entire building. If the gross leasable area of the leased premises is compared to the net leasable area of the entire building, the tenant will be paying more than its proper share (and if all tenants are being similarly billed, the landlord will be collecting more than 100% of the increase in costs.
If the premises have
not been measured prior to signing the lease, the campus should include this
article in its entirety. If the subsequent measurement differs from that stated
in the lease, the landlord and the campus must sign a letter agreeing to the
re-measured premises. In the case of leases outside of the campus' authority,
a copy of that letter should be sent to RESG along with an amended lease for
2.1 Lease Term.
If the exact date of Lease Commencement is known (usually because the Premises are taken on an "as- is" basis and no Tenant Improvements are done) , the language in the lease should read:
The term of this Lease (the "Lease Term") shall be for _____ months, commencing ________________ and ending ____________________ ("Lease Expiration Date"), with such rights of termination and extension of the Lease as are hereinafter set forth.
If the exact date of Lease Commencement is not known, the language in the lease should read:
The term of this Lease (the "Lease Term") shall be for _____ months, commencing as specified in Exhibit C and ending ____________________ ("Lease Expiration Date"), with such rights of termination and extension of the Lease as are hereinafter set forth.
In this case, Exhibit C must be referenced in the lease. (See comments in Exhibit C.)
In the event that the Lease Commencement Date is subject to completion of tenant improvements this language may be used:
The term of this Lease (the "Lease Term") shall be for _____ months, commencing upon completion of tenant improvement work and as specified in Exhibit C and ending ____________________ ("Lease Expiration Date"), with such rights of termination and extension of the Lease as are hereinafter set forth.
In this case, Exhibit
C must be referenced in the lease. (See comments in Exhibit C.)
2.2 Extended Term.
The option period or periods should be defined by number and length. For instance, three one-year periods; 2 periods of 18 months each; one period of 24 months, followed by one period of 6 months, etc.
Within the time agreed upon by landlord and University, the campus should provide a written notice to the landlord that the University intends to exercise its option. The exercise of the option should then be memorialized by an amendment to the lease stating the extended term(s) of the lease.
The rent stated in this article should be that amount agreed upon by the campus/lab and landlord, exclusive of any additional rent. Any rent escalations should be noted in Addendum 3.
If the landlord has given rent concessions, the terms of the concession should be noted in this section. For instance, the language may be altered to state: Except as otherwise provided in Addendum 3, Tenant shall pay to landlord as Monthly Rent for the Premises the sum of _________________________ (this figure to be base rent only, excluding concessions) dollars ($____________) payable in advance on or before the first day of each month, beginning ____________________________ "Rent Commencement Date") for ____ months except for months _________________________ where the Tenant shall pay the sum of ______________________________ (this figure to be base rent less any concessions) dollars ($________________) payable in advance on or before the first day of each month. If the Rent Commencement Date is other than the first day of a calendar month...
3 section for further notes.
Early lease termination
is to the advantage of the University but is frequently not acceptable to the
landlord. If the landlord allows for early termination to become a covenant
of the lease there is usually a cost associated with its inclusion, such as
a higher base rent, shorter term and/or the right is reciprocal.
A second option is provided
for early termination when it is understood that there is a third-party funding
source that may not be continually available.
This article allows
for three possible alternatives. The appropriate alternative should be chosen
based upon when the landlord pays property taxes and when the lease commences.
Alternative 1 - landlord will pay property taxes not included in the calculation of rent and the University will apply to the County taxing authority for its refund, with landlord's cooperation.
Alternative 2 - property taxes are not paid to the County taxing authority by landlord nor are taxes included in the landlord's calculation of rent, recognizing the University's exemption to payment of taxes. In recognition of the lower rent rate, the University would be required to do all reasonable acts to secure the exemption from the county for the term and agree to reimburse the landlord for taxes that landlord must pay if the University does not retain the exemption. If this process is chosen, it is imperative to inform the Landlord directly and verify that property tax expenses have been excluded from the rent. Landlords are frequently reluctant to do this out of concern that the artificially lowered rent will be made known to Landlord's other tenants or to the market in general.
Alternative 3 - presumes that landlord cooperates with the University to secure the exemption and that the landlord will pay to the University the amount of money the landlord did not have to pay the County because of the University's tax exemption. Some leasing authorities have discovered that occasionally a Landlord will not reimburse the University for the tax benefit it gains. The auditing of Landlord's records then becomes very important.
Special Note on Special
Assessments and Local Property Related Changes: In his opinion dated January
29, 1997, Special University Counsel George L. Marchand stated that "Proposition
218 has no impact on the ability of local governments to impose special assessments
or user fees on the University. In other words, it does not eliminate the University's
current exemption from special assessments or change its current obligation
to pay reasonable, nondiscriminatory user charges for property related services
actually provided to campuses and facilities of local governments or special
The name of the landlord
and the University should agree with that stated in the Preamble.
The University's name
should state The Regents of the University of California, a California corporation,
on the first line. The campus may then add: "c/o The Business Office...etc."
on the second line.
This article provides for two alternatives. The first, when the landlord provides for a tenant improvement allowance of a set dollar amount, the second, when the landlord provides specific tenant improvements at landlord's cost.
7.1 Tenant Improvements.
A description of
when the tenant improvements shall be constructed and that they will be constructed
in accordance with plans and specifications approved by both parties. A reference
must be made to the attached Addendum which will describe the construction.
Cost of Tenant Improvements.
Tenant Improvement Warranties.
This section allows
for the negotiation of the time period for substantial completion of construction
of Tenant Improvements by the landlord and the time period in which the tenant
must deliver to the landlord a punch-list of items to be completed or corrected.
This is a fairly benign
article so long as the tenant remembers to complete and return its punch-list
within the specified time.
The obvious difference between the choice of language in Article 9 is the addition of a monetary penalty assessed against the landlord should the landlord not deliver possession of the premises on the agreed upon date. Most landlords would prefer the former of the two choices, but the tenant should negotiate the use of either choice based on its analysis of the landlord's reliability to deliver possession and the tenant's ability to have its programmatic need postponed by a delay in occupancy.
10.2 Compliance With Laws.
This section of Article
10 should be handled carefully as the University will absolve the landlord of
legal or other responsibility for listed codes, regulations, laws and ordinances
that are listed here. Those that are listed should be evaluated by the University
as to whether such construction is acceptable for its occupancy.
10.3 Hazardous Substances.
There is no other article of the lease that landlord's try to amend more than this one. Essentially, the landlord is assuring that its property has no known hazardous materials in the University's Premises or on the property as a whole and indemnifies the University of any responsibility for such prior to occupancy. Obviously, landlords will attempt to absolve themselves of as much of this potentially onerous economic responsibility as possible.
The Office of the President
strongly advises that negotiations that would amend this language be avoided.
Any amendment to this language will cause the document to be non-standard and
review by the General Counsel will be required.
The definitions herein are self-explanatory, yet at the time of negotiation the University's negotiators should understand the accounting and bookkeeping methods employed by the landlord to calculate the costs associated with direct expenses. It is not uncommon for a landlord to charge a tenant for expenses that exceed its percentage share or are not within the definitions of expenses allowable under the lease. The landlord may calculate the tenant's share as a percentage of occupied space (the landlord's position being that no operating cost should be allocated to vacant space). This may or may not be an accurate interpretation of the lease clause.
The landlord should not be allowed to pass on its capital expenses to the tenant as operating and maintenance costs. Also, the University should negotiate against a landlord's inclusion of expenses that do not benefit the building as a whole but rather specific tenants (for example, by using space as a building management office). Some items that should never be included in the landlord's calculation are any personal expenses of the landlord for travel, entertainment, etc.
Additional costs of special services such as weekend utility service, special trash pick up, freight elevator use, etc. should be considered when calculating the operating cost pass-through. Costs of maintaining parking facilities for tenant and their customers are usually considered operating costs (see Addendum 1).
(a) Tenant's Percentage:
(b) Base Year: If the negotiated lease language differs from the landlord's "Standard" clause as a result of campus negotiation, the escalation may be calculated in error on the basis of the landlord's standard calculations. The campus should check rent invoices against the language in the executed lease to guarantee that they are not losing the benefit of the negotiated agreement.
(d) Direct Expenses:
If the negotiated lease
language differs from the landlord's "Standard" clause as a result of campus
negotiation, the escalation may be calculated in error on the basis of the landlord's
standard calculations. The campus should check rent invoices against the language
in the executed lease to guarantee that they are not losing the benefit of the
11.2 Additional Rent.
Additional rent is usually a monthly estimated payment based on the operating cost pass-throughs. Additionally, whenever the University Tenant pays for tenant improvements on an amortized base, that cost should be included as additional rent separate from base rent. This method will accurately reflect the true base rent for determination of authority to execute the lease documents .
Landlords have been
known to negotiate an extension of the five day period in which landlord must
respond to correct a failure to furnish services and utilities. It is the opinion
of the Office of the President that for critical services, such as parking,
elevators, janitorial, etc. and for all utilities, five days is a "reasonable"
period in which to respond and that further delay jeopardizes the value of the
University's leasehold. Also, deduction of the "cost to remedy" from University's
rent acts as an abatement of rent (cashflow) to the landlord, which the landlord
will make best efforts to avoid by deleting this language.
Frequently, tenants are required to pay for heating, ventilation, and air conditioning services used on nights or weekends. Some tenants may pay a higher rent for regular extra cleaning services, special elevator service, or other benefits. Because the landlord is reimbursed for the additional cost of these services, the costs should not be considered when calculating the operating cost pass-throughs. The terms of provision of these extra services should be spelled out in detail.
Electricity costs create a number of complicated issues. A tenant may pay for electrical use in one of three ways: rent inclusion, submetering, or direct metering. Errors can be made using any of these methods when calculating the tenant's costs. For example, when electricity is provided on a rent inclusion basis (i.e., when the rent includes the electric costs), the landlord will conduct an electrical survey at the time the lease is entered into to determine the approximate cost of electricity, which is then added to the base rent amount.
If the tenant installs or removes equipment during the lease term, adjustments to the electric costs should be made. A schedule of equipment charges should be prepared to ensure that the tenant is not overpaying. The utility rate schedule used by the landlord should be reviewed. Rate schedules impose higher rates on small electricity users than on large users; when this is an issue, a consultant may be retained to determine whether the tenant has not been overcharged.
When electricity has been
provided on either a direct or submetering basis in which the tenant pays the
utility directly, the lease usually states that operating costs include electricity
used to power elevators, air conditioning, office lobbies, and other common
areas. In this situation the tenant should determine that none of the common
area electrical charges are measured by the tenant's meter (which would mean
that the tenant is actually double-paying), and determining that the common
area electrical usage is properly allocated and charged at the favorable rate
to which the landlord, as a large user, is entitled.
Both sections of this article, for landlord and tenant respectively, set out the tortious acts that each shall compensate the other for and give security against. Indemnity language should be reciprocal.
may require the University to limit Landlord's liability. The following language
is an acceptable addition to the Standard Form Lease Agreement - Regents as
Tenant, provided that Landlord has a sufficient fee interest in the building
to cover any claims made. If the University lease authority contemplates use
of the following language, care should be taken to ascertain the extent of Landlord's
interest in the Property.
"Tenant agrees that, in
any action arising out of or relating to the performance of this Lease, Tenant
will proceed only against Landlord or its successors and assigns and not against
any general or limited partner in Landlord (or in any partnership to which Landlord
may assign this Lease), or any of Landlord's or such partner's directors, officers,
employees, agents, shareholders, partners or affiliates. Notwithstanding anything
in this Lease or any law to the contrary, the liability of Landlord hereunder
(including any successor landlord hereunder) and any recourse by Tenant against
Landlord shall be limited solely to the interest of Landlord in the Building,
the land on which the Building is located, the proceeds thereof, and available
insurance proceeds, and neither Landlord, nor any of its constituent partners
or subpartners, nor any of their respective affiliates/partners, directors,
officers, employees, agents or shareholders shall have any personal liability
therefor, and Tenant, for itself and all persons claiming by, through or under
Tenant, expressly waives and releases Landlord and such related persons and
entities from any and all personal liability."
These sections of article 14 should be reviewed by risk management for each campus and landlords should be expressly informed that the University self-insures.
14.2 Landlord's Insurance.
The article references both parties rights of recovery against the other for loss of or damage to property only and essentially makes each party responsible for any such loss. In other words, for property damage or loss from acts of God or any other property peril, the tenant or landlord cannot look for recovery from the other or the other's insurance.
Landlord and Tenant Obligations.
Capital improvements can
be made either to achieve cost savings or to comply with federal, state, or
municipal laws (such as installing automatic elevators or a sprinkler system).
Whether either type of improvement can be passed through to tenants is a matter
of interpretation. Items identified as capital outlays may be labeled as routine
maintenance and repair. These issues should be clarified in the lease.
Failure of Landlord to Make Repairs.
This amount is a negotiated amount, but is normally kept low (in the $5,000-$10,000 range) so that substantive tenant improvements cannot be made without the landlord's written consent. Landlord's concerns that even relatively minor alterations may effect critical systems can be mitigated by adding language that prohibits any alteration, even those casting less than the maximum allowed without landlord's consent, if such alterations would affect any building system or structure.
17.2 Condition at Termination.
A mechanic's lien is a
statutory lien on real property to secure the compensation of persons whose
labor or materials have contributed to the improvement of such property. A mechanic's
lien is a specific (rather than a general) lien; it attaches to the land and
building erected on it (but not to other property of the debtor). The lien becomes
an encumbrance when the work is performed or when the materials are supplied
so that subsequent claims against the property or subsequent purchasers of the
property are subordinated to the lien. The concern of the landlord is that a
tenant may contract for extensive alterations or improvements and then be unable
to pay for them, throwing the burden on the landlord. Because of potential liability,
the landlord should seek to go beyond the standard lease form in order to minimize
or eliminate the risk that it may ever be forced to pay the claims of those
providing labor or materials to the campus. The language of the Standard Form
Lease Agreement should be sufficient to minimize the landlord's risk.
Withholding of the landlord's
consent may be reasonable if the University were to change the use of the space
or if the landlord's risk (economic, environmental, etc.) increases with the
potential assignment or sublet to another party. Language which requires assignee
or sublessee to have the same financial health as the assignor/sublessor should
be avoided because it would be improbable that assignees/sublessees could equal
University's financial standing. If Landlord wished to assure the financial
strength of an assignee/sublessee, it could add language which states that the
assignees/sublessees have sufficient financial resources to guarantee its lease
obligations. This language leaves room for the interested parties to negotiate
the reasonableness of the assignment/sublet request.
The language presented in both alternatives is self-explanatory but please note that landlords may try to negotiate longer notice and response periods as well as a greater percentage of destruction or non- reduction in rent. The percentages and notice periods shown are considered reasonable by the Office of the President and University Counsel.
The landlord and campus/lab should be sure to coordinate the language of this article with related articles - notably, the insurance and repair/maintenance articles. As a general rule, the insurance language should track the destruction language. For example, once the destruction language allocates the repair or restore obligations between landlord and tenant, the insurance provisions should require each party to carry sufficient insurance to perform its obligations.
Payment of prevailing wages is the main thrust of this article. What the University is asking the landlord to adhere to is the payment of the general prevailing rate of per diem wages in the locality in which the "public work" will be performed. As this is mandated by the State, any savings, to the landlord and/or the tenant, that arise from the charging of wages for tenant improvement work that are lower that the prevailing wage would be unacceptable to the University. The article is included in the SFLA as a notice to Landlord. It is not the University's obligation to monitor Landlord's compliance if landlord is controlling the construction. Also, the University should not guarantee that the construction should or should not be considered a "public work" if it is not responsible for the construction. That would be the responsibility of the landlord.
In the context of this article, service companies are those that the University would contact to perform the landlord's responsibilities under the lease. This article is seldom contentious as it only requires the landlord to provide the University with a list of repairpersons available to the University.
"Failure to fulfill a duty or promise or to discharge an obligation; omission or failure to perform any act."
In the negotiation of a lease it should always be assumed that the University would never be in "default". However, in the off-chance that any of the lease's covenants are breached by the University this article would interpret such as a "material breach of the lease". Essentially, this means that the merits of the lease, as distinguished from its form, have been violated in a manner so substantial and important as to give the landlord the option to exercise any and all of its rights under the law to form the tenant's compliance.
Please note that the blanks provided in this article allow for the insertion of a period of time. This period of time is triggered by written notice from the landlord to the tenant.
Within the time period
mentioned above the University would be able to cure the default. Many landlords
will negotiate for this period to be the shortest possible and conversely, the
University would negotiate for it to be longer in Article 24-Default by Landlord.
It is suggested that the time period for both landlord and tenant be of a length
that is reasonable to both parties.
Also, negotiations that incur monetary penalties should be avoided whenever possible, allowing for remedies to be determined upon the exercise of rights available under state law.
The discussion of default
in this article would be the same as in Article 23.
Condemnation is the process by which property of a private owner is taken for public use, without the owner's consent. Award or payment of just compensation must be given to Owner. This action is in the nature of a forced sale and the condemnor stands toward owner of the property as a buyer toward a seller.
This article provides for a choice of: a) termination of the Lease at the option of the Tenant if any part of the Premises is condemned, or b) if more than 50% of the Premises are condemned, Landlord may terminate the Lease after notice to the Tenant, or Tenant may terminate after notice to Landlord, only if the Tenant cannot continue operation of its activities. The first option allows more flexibility for the Tenant.
The provisions for holding over must be included in the lease. Although California law states that lease contracts have an implied holding over period of one year if none is stated, University policy directs that the holding provision be included in all lease contracts and that the amount of rent required during the hold-over period must not exceed the given dollar limits within the authority of the signatory.
A waiver is a voluntary, intentional relinquishment of a known right. This article states that if the Tenant or Landlord has waived certain rights in one part of the lease, say, Waiver of Subrogation, that the Tenant or Landlord has not implied a waiver of any other right not specifically stated as such.
Generally, it is not the University's policy to pay for the other party's attorneys' fees except in the case wherein the other party prevails in a court action. Then, the reasonable attorneys' fees would be set by the court. The campus should be careful to negotiate exclusion of reference to payment of attorneys' fees other than in the case of a court's judgement for the opposing party.
When the Tenant occupies space it is with the agreement that the Landlord, or any of Landlord's agents, will not disturb, or interfere with the University.
This article provides for the continuance of the lease in the event that the Landlord's interests are replaced by another party. For instance, in the case of sale of the building, the new owner will have the same rights and responsibilities as the previous owner. The agreement to subordinate is effective by virtue of this article in the lease, however, it is not uncommon for the new owner to request other documents, such as an attornment agreement, to be signed by the tenant.
This article states that upon written notice to do so, the Tenant or Landlord must send an estoppel certificate to the other party. This certificate warrants that as of the date of the request, the lease is in force.
32.1 No Amendments.
This article states that any changes to the lease must be in writing and signed for the changes to be valid. A verbal agreement is not binding on either party.
32.2 Time of the Essence.
This article serves as a reminder to the parties not to delay any action concerning the agreement.
32.3 Binding Effect.
This article states that except in the event of an assignment or sublease by the Tenant, the lease is binding on the parties who sign the agreement, as well as on the party's representatives.
This article, much like Article 27 - Waiver, acts to counter the implication that action taken regarding one part of the lease implies action to any other part of the lease. Particularly, this article states that if court action proves an article of the lease to be invalid, that action does not imply that any other article of the lease is invalid.
32.5 Warranty of Authority.
This article is added to the lease to prevent the Landlord from invalidating the contract based on its being executed by an agent of the Landlord who is not authorized to sign the document.
The floor plans
included as Exhibit A should include detail of the entire leased premises sufficient
to ascertain suite numbers, common areas, offices, etc. If Article 1.3 Parking
references landlord- provided parking spaces, those spaces must also be designated
in the Exhibit A.
The number of parking
spaces included on a reserved and non-reserved basis should be designated, as
well as the manner of payment of those spaces. If the spaces are provided at
no additional cost, that should be so stated.
In the case where the landlord receives parking fees from third parties who use the facility, the tenant and landlord must agree as to whether the operating cost escalation should include only the excess of parking costs over the income received or whether the operating cost escalation is based on a set number of spaces used by tenant.
If the negotiated lease
language differs from the landlord's "Standard" clause as a result of campus
negotiation, the escalation may be calculated in error on the basis of the landlord's
standard calculations. The tenant should check invoices against the language
in the executed lease to guarantee that they are not losing the benefit of the
The campus should verify the accuracy of CPI indexing in these respects:
Although individual errors in calculation or interpretation may be minor, they can add up to a surprisingly large amount when aggregated over the lease term (actualized for past years and projected for future ones).
2. Tenant Improvements.
3. Construction Plans, Landlord Review, Estimated Costs, Changes and Delay
4. Approval of Plans by Public Authorities.
5. Quality of Work.
6. Acceptance of Premises.
7. Tenant's Access During Construction.
9. Notice of Non-Responsibility.
10. Responsibility for Damage.