With strong office markets in many parts of the country, landlords are becoming rather bullish. In that spirit, they are looking to maximize leasing flexibility in accommodating new and growing tenants. One leasing flexibility tool that landlords have in their toolbox is the right in the lease to relocate a tenant. While tenants want to see their landlords succeed in keeping the building well occupied, they are more concerned with maintaining a productive office. Relocation is extremely disruptive for businesses when they are planning to move at the expiration of their lease; it’s even worse when the landlord issues you a notice out of the clear blue that they are going to relocate you. Even though the relocation move is typically paid for by the landlord, assuming the tenant has negotiated that into its lease, that is little consolation for the intangible loss in productivity to the tenant’s business. Outlined below are strategies to fundamentally eliminate this right and, where that is not feasible, to neuter it as much as possible.
Willis Tower sells for $1.3 Billion. Such eye-popping sales headlines are fairly common today. With low interest rates and rising rental rates, we’re seeing record volume of office building sales in Chicago and many markets nationally. As part of the sale of an office building as well as refinancing, tenants will receive a document known as an “Estoppel Certificate” from their landlord as is commonly required in most office leases. Below is a brief explanation of “Estoppel Certificates” and what tenants should consider when negotiating their lease and what to look for when reviewing one.
Question: “What is a landlord with a troubled CMBS loan?”
Then smart money came along and structured a secondary market for the trading of commercial mortgage backed securities (CMBS).
Now, mortgage bankers could transfer loans to a tax-advantaged trust. The trustee, with promissory notes in hand and an expectation of receiving regular interest payments on the pool of loans, could issue a series of bonds varying in yield and risk. Rating agencies could come in and assign ratings to the various bond classes: from the most secure AAA down through the below-investment grade and unrated bonds. Bankers could underwrite and sell the securities to investors. Bond investors could select from the tranche matching their credit risk, yield, and term preferences. Meanwhile, down in the boiler-room, a master servicer, engaged by the trustee to service the loans, would collect mortgage payments, release disbursements from escrow, and handle other routine loan matters, all so long as a loan performs as expected.
However, a wheel or two came off the truck during the last few years and some loans have not performed as expected.
And rating agencies expect more troubled CMBS loans to surface, despite the gradual improvement in the economy.
Taking advantage of the depressed office market, as a savvy tenant you just renegotiated your office lease reducing your rent and locking in a low rent structure for the next several years. But did you close a big loop hole that could negate this great deal? If your lease is like most leases, it contains a subordination clause making your lease inferior in position to any existing or future lenders. In many states where a lease is subordinate to a mortgage and the lender forecloses on the property, the tenant is at the lender’s mercy as the lender can elect to terminate or recognize the lease. In such an event, the subordinate tenant is in a very vulnerable position as the lender has leverage to force the tenant to renegotiate the lease on the lender’s terms. To plug this loophole, a tenant should have a Nondisturbance provision in its lease and have a Nondisturbance Agreement with the existing and future lender(s). In today’s market, tenants are well advised to preserve some negotiating capital for this important issue.