Chapter 22 - Leases and Property Types

Bill's shoe store pays base rental payments of $1,200 per month, plus 1.5% of gross show sales in excess of $18,000 each month. What will Bill's monthly rent payment be if sales this month total $26,000?

$1,320

A graduated rent clause has scheduled rent payments of $10,000 per month for the first two years, with 6% annual increases at the beginning of years 3-5. What will be the monthly lease payment in year 4?

$11,236

Given the following information, calculate the load factor for this office property: Total usable area: 20,000 sq. ft.; Tenant's prorated share of common area: 5,000 sq. ft.

1.25

The market value of Class A building typically exceeds ____ million.

10

Given the following information, calculate the tenant's rentable area: Tenant's usable area: 4,000 square feet; Total usable area in office building: 20,000 square feet; Total common area in office building: 4,000 sq. ft.

4,800 square feet

Lease terms of ____ are most common for office leases.

5-10 years

Both a sublease and an assignment achieve which of the following?

Both maintain that the original tenant is liable for fulfilling the terms of the original lease unless relieved of doing so by the owner.

"CAM" stands for _____ ____ ____.

Common area maintenance

Lease lengths for commercial property can vary considerably. All else equal, owners prefer longer leases for which of the following reasons?

Delay of releasing costs Delay of tenant improvement allowances Stability of operating income

True or false: Apartment properties are classified as nonresidential properties.

False

True or false: If the contract rental rate is flat over the lease term, the owner cannot require the tenant to also pay some or all of the operating expenses associated with operating the property.

False

True or false: The dominating feature of a power center is the low ratio of anchors to ancillary tenants.

False

True or false: The lease need not specify who pays maintenance expenses.

False

____ must be considered by a tenant when comparing a five-year lease to an available 10-year lease but is (are) ignored by the effective rent calculation.

Flexibility Releasing costs Interlease risk

Which of the following type of lease generally has the longest lease term?

Ground lease

Once possession and control are conveyed to the tenant, the owner must provide the tenant with uninterrupted use of the property without any interference from any entity that may impose upon the tenant's leasehold interest in the property. In other words, the tenant is entitled to which of the following?

Quiet enjoyment

The 12 fundamental criteria for classifying office buildings listed in the textbook were obtained from

The Institute of Real Estate Management

Important, nonwaivable, rights enjoyed by residential tenants include which of the following?

The property must be maintained in a safe and habitable condition The right to protection from "unreasonable entry" into the premises by the property manager

____ typically responsible for the payment of utilities in residential rental properties.

The tenant is

Reasons why a landlord may want to place restrictions on the use of a space include which of the following?

To limit potential legal liabilities To prevent conflicts with other tenants To prevent damage to the building

The lease must be clear about the circumstances and the extent to which the tenant is permitted to alter the leased premises. The lease must also be clear about the ownership of such improvements once completed. Which of the following terms refers to items of personal property that may be removed by the tenant at the termination of the lease?

Trade fixtures

A typical commercial real estate lease allows the tenant to use the space for any legal purpose, if a lease does not state a specific purpose for which the property may be used.

True

True or false: A co-tenancy clause is generally intended to provide protection for one of the smaller tenants in a shopping center.

True

True or false: Shopping center leases typically regulate the business hours of tenants.

True

True or false: Valid and enforceable lease agreements must be in writing.

True

____ generally require less management effort than other types of commercial property.

Warehouses

A lease clause, designed to protect the owner, by which lease payments increase over time according to a schedule specified in the lease agreement, is generally known as:

a graduated rent clause

A lease clause under which rent payments are based, in part, on the level of sales the tenant achieves is often called:

a percentage rent clause

A co-tenancy clause:

allows the tenant to cancel the lease or pay reduced rent if a key (anchor) tenant vacates the center

Rent for U.S. commercial properties is typically quoted as:

an annual dollar amount per square foot

In a newly-developed shopping center, when a key tenant does not open as scheduled, relief is provided to other tenants by:

an opening co-tenancy clause.

The large and generally well-known retailers who draw the majority of customers to a shopping center are more commonly referred to as:

anchors

Lease clauses that permit the owner to increase rental rates over the term of the lease are not typically found in:

apartment leases

Tenant improvement allowances granted to the tenant by the landlord:

are usually stated as a dollar per square foot amount.

As a tenant, you wish to turn over all the rights and responsibilities of your unexpired lease to a new tenant. If allowed to do so, you would be ____ your leasehold interest.

assigning

When the term of the ground lease expires, the owner of the land ends up with ownership of

both the land and the building

When leases expire and tenants vacate the space, releasing costs are typically incurred by

both the tenant and the property owner

Lease options granted the owner that may be exercised to the detriment of the tenant generally require some form of lease ____ from the owner.

concession

If the supply of leasable space exceeds the demand in a local market, it is common for owners to provide the tenant with a period of free or perhaps reduced rent. This is commonly referred to as a(n):

concession.

Landlords typically ____ tenants to alter or improve the leased premises without prior written approval.

do not allow

When negotiating longer-term leases with tenants, property owners try to prevent

future market rents from increasing faster than the contract rental rate

An "exclusive":

gives the tenant the right to be the only tenant in the center that sells or provides a certain kind of good or service

A tenant has the option to renew a five-year lease at lease maturity for an additional five years at the rate the tenant is paying in year five. To obtain this option, the tenant likely had to pay rental rates in years 1-5 that are ____ the rents the tenant would have had to pay if the renewal option was not included in the lease.

greater than

All else equal, the effective rent of a lease that requires the tenant to pay for a portion of the property's operating expenses, in addition to base rent, has an effective rent that is ____ what the effective rent would be without paying for operating expenses.

greater than

In most office leases, the tenant's "rentable" area, measured in square feet, is ____ the tenant's usable area.

greater than

In retail property types, rents are typically quoted on the basis of which of the following?

gross leasable area

Hotel leases can be characterized as:

gross leases

When tenants vacate a commercial property, the owner generally must incurer expenses associated with refurbishing the space to make it suitable for the needs of the next tenant. These required tenant improvements (TIs) are typical less in ____ properties than in other commercial property types.

industrial

Expense stops limit the "pain" of increases in property-level operating expenses for the:

landlord

All else equal, the effective rent of a lease that provides a period of free rent to the tenant has an effective rent that is ____ what the effective rent would be without the concession. Multiple choice question.

less than

Anchor tenants typically sign leases with term lengths that are ____ the typical term length of leases signed by non-anchor tenants.

longer than

Apartment properties comprised of eight-story buildings would typically be classified as:

mid-rise apartments

The effective rent calculation captures the effects of:

monetary lease clauses

The success of hospitality property investments is typically ____ dependent on the quality of management than office buildings. Multiple choice question.

more

A shopping center, typically anchored by a large grocery store, and that often includes many service-orientated business, is commonly termed a:

neighborhood center

The type of lease that requires the tenant to pay the property's local property taxes, but not other operating expenses, is a:

net lease

Industrial "flex" space is typically a combination of industrial and ____ space.

office

Office building owners usually recover a larger portion of the property's operating expenses from:

older leases with lower per square foot expense stops

The most common lease term observed for residential rental properties is:

one year

Generally, the number of stories (floors) in a residential building is ____ related to the price of land in a market.

positively

Common area maintenance (CAM) charges are usually

prorated among tenants based on the percentage of the center's total GLA that they occupy

All else equal, a lease option granted to the tenant by the landlord:

reduces the expected present value of lease cash flows to the ownerq

Shopping centers that focus on general merchandise and that usually have at least two anchor tenants are commonly referred to as a:

regional shopping center

Clauses that regulated the hours that a tenant's business is open are most common in

retail properties

Office tenants generally:

share (with owners) in the payment of operating expenses

Requiring a tenant's employees to park only in (more distant) designated areas is most common in

shopping center leases

In multi-tenant industrial parks, common area maintenance is handled in a manner similar to ____; that is ____ maintains the common area and tenants reimburses the owner for CAM costs.

shopping centers, owners

All else equal, if a retail tenant agrees to the inclusion of a percentage rent clause in the lease, the negotiated base rent

should be lower

Lenders may request that property owners include a clause in their lease agreement that gives the lender the right to terminate the lease and evict the tenant, even if the tenant has fulfilled all of its responsibilities under the lease, in the case that the owner of the property defaults on her mortgage. This is more commonly referred to as a:

subordination clause

A renewal option generally benefits the:

tenant

When leasing to a new tenant, the owner might incur an additional expense associated with the cost of refurbishing the space to meet the needs of the tenant's business. This expense is often referred to as a(n):

tenant improvement allowance

Use clauses are more important in retail than office because ____ more important in retail properties than office properties.

tenant mix is

A statement of condition is signed by the ____ at the ____ of the residential lease term.

tenant; beginning

With a ground lease, generally all operating expenses including property tax associated with the building that sits on the land will be paid by

the owner of the building

Flat contract rental rates are more likely to be observed

the shorter is the lease term

The location of a tenant's name on a shopping center sign is often heavily negotiated because

the tenant wants its business to be as visible to shoppers as possible

The gross floor area of a shopping center is equal to:

the total GLA, plus the square footage of the common area

Many warehouse properties are leased to single tenants on a

triple net lease basis

To protect the property, the lease must give owners the right to enter and inspect the leased space ____.

without violating a tenant's right to quiet enjoyment