What to Do When Reviewing a Small Lease—Some Practical Suggestions
March/April 2022 I Probate & Property Magazine I Scott Fielding
Most businesses will continue to need space to meet, operate, recruit, train, and provide storage (among other reasons) well into the future, and leasing property is the means most likely to provide that space. A lease might provide such space at a significantly lower cost than fee simple ownership. For some businesses, the lease is the only means by which a business can afford to acquire office space. For others, the lower capital investment involved with leasing property offers them more flexibility as needs change—meaning that it is easier for a company to move from one location or expand at an existing location.
The lease transaction is more complicated than most real estate purchase transactions; the lease involves affirmative and negative covenants and expenses that will last many years. Despite a lease’s importance and complexity, many commercial tenants enter into small lease agreements without legal representation, fearing the legal costs involved (or because they believe the landlord’s comment that the form is nonnegotiable). This is a mistake. The lawyer representing the tenant in a small lease transaction, however, needs to be efficient and render good judgment with issues that will be raised with the landlord. This article focuses on some of the essential issues most pertinent to the small office lease. For other good articles on this topic, which the author’s practice has undoubtedly benefited from, see Michael E. Meyer, Fifteen Pragmatic and Practical Tips for Negotiation of Small Leases, PLI Course Handbook: Negotiating Commercial Leases (2019), and Richard C. Mallory & Danna M. Kozerski, Commercial Leases Overview (Practicing Law Institute 2016).
Preliminary Thoughts—Brokers, Timing, and Guarantees
There are important steps the tenant should consider besides involving a lawyer, including engaging a broker. A good broker understands leasehold values and market conditions to allow for a more informed negotiation of the rental rate, free rent, and improvement allowance. The broker can help with strategic planning to determine optimal facility needs and how to accommodate future space requirements and may have a level of construction expertise within its group that can assist in the buildout of the space and evaluate overall cost. The broker also provides knowledge of space availability.
The tenant’s appropriate timing of the lease search and lease negotiation is also key. Many tenants don’t begin the search for and negotiation of the lease soon enough. The tenant needs to have enough time to consider alternative locations and to break off lease negotiations at one location and start negotiations on another space, if necessary. When the tenant has no time to consider alternatives, negotiating leverage further shifts to the landlord. A longer window of engagement in the process of evaluating the market provides more opportunities to appropriately time market fluctuations and doesn’t pigeonhole the user into a specific timeframe that may be less tenant-friendly. The tenant’s leverage is greatest at the letter of intent and term sheet stage, and therefore if it waits too long to negotiate and the first lease does not work out, the tenant may be at the mercy of the next prospective landlord, who will likely know or find out that the tenant is in a time crunch.
Probably the most important legal point in any lease for the owner of the small tenant (as opposed to a business point, like the amount of rent) is whether a personal guaranty will be involved. This issue needs to be resolved at the outset—the term sheet or letter of intent stage—because a guaranty requirement will be a showstopper for some tenants. Even if the landlord insists on some form of guaranty, the extent of the guaranty must be considered, including whether there is a cap or whether it burns off or expires.
Construction Issues—Tenant Improvement Allowance, Buildout Costs, and the Rent Commencement Date
Tenant Improvement Costs and Allowances
As an inducement to enter into the lease, the landlord often provides the tenant an allowance for the buildout of its space, which may or may not be sufficient. To mitigate the uncertainty in buildout costs, the tenant should consider completing enough design work to receive meaningful quotes from contractors for the buildout cost before executing the lease. Admittedly, there is a balancing act here for the tenant; depending on the size of its buildout and the importance of its space, it may have to enter into the lease agreement before finishing its architectural plans. But even if the plans cannot get finished before lease execution, the architectural plans need to be sufficiently complete so the tenant can obtain a meaningful buildout cost estimate.
The work letter, which will be legally binding upon execution of the lease, will likely contain a process for finalizing the tenant’s architectural plans. If getting the final design completed before lease execution is not practical, the tenant should include in its initial plans (which will be approved by the landlord) any items or specifications essential to the buildout of the space, so the tenant knows before execution that these items have been approved by the landlord. For instance, it may be quite important that a health care tenant know that its generator and the location of its generator have been approved before signing the lease.
Because the tenant is paying for the tenant improvement (TI) allowance (it is included within the landlord’s calculation of base rent), the tenant should try to use all of its improvement allowance. One often-negotiated point is whether the allowance can be used for soft costs (e.g., architect or engineer fees). What about furniture, fixtures, and equipment (FF&E)? Moving expenses? The landlord, of course, will want the allowance to be used only for hard construction costs and maybe soft costs like architect, engineer, and space planning fees. If a robust TI allowance is properly negotiated, it can often be stipulated at the time of the lease execution that some portion of the allowance can be, upon notice from the tenant, converted to rental abatement, which in turn can be used to offset other project costs such as moving or FF&E expenses.
The tenant should ensure that the landlord competitively bids the construction work (gets bids from at least three contractors). The tenant may be able to suggest a preferred contractor to bid on the work, and perhaps the tenant can negotiate the right to approve the final contractor. If the landlord is in charge of the buildout of the space, the tenant should inquire about the landlord’s construction management and administration cost and negotiate this fee amount. The tenant also needs to make sure it has a right to enter the space before the commencement date to install its FF&E and to otherwise finish items that are not part of the landlord’s work.
Rent Commencement Date
The date on which the tenant’s obligation to pay rent begins will either be a fixed date—a certain number of days after the date of lease execution, for example, if the tenant is in charge of the buildout—or be keyed to the date of substantial completion of the tenant improvements by the landlord. In many situations, there is a date by which, for business reasons, the tenant must be in the space—either as a result of moving from an old location with a lease that is expiring (so the tenant must be out of the space or risk being a holdover) or because of operational needs of its business. Counsel needs to discuss this with its tenant client, understand the date, and try to negotiate incentives within the lease to achieve that date.
As a practical matter, small tenants—especially small tenants without some sophistication dedicated to the construction process—may be better off letting the landlord handle the construction. When the tenant is in charge of constructing its own tenant improvements, the landlord will insist on a fixed date for base rent to commence, whether or not the buildout of the space is completed. It is unlikely the landlord will allow the rent commencement date to be the date of substantial completion or certificate of occupancy because the landlord has no control over construction or completion. Accordingly, an unsophisticated tenant, or a tenant busy focusing on its business operations, could fail to appropriately supervise the construction of the tenant improvements and fail to get construction completed on time. As a result, the rent may commence well before the space is ready (and the tenant may be paying rent for two different locations simultaneously). Furthermore, because it is the landlord’s building, and the tenant is engaging the contractor, the tenant needs to be concerned with the tenant’s contractor not damaging the landlord’s building during construction. For these reasons, the unsophisticated tenant may allow the landlord to handle the buildout of the leased space. That said, some tenants prefer to enter into the construction contract and pay the contractor directly to have more of a controlling hand in the quality of construction, the construction schedule, and the timing. These tenants are concerned that if they let the landlord handle the buildout, the landlord’s incentive will be to get the space built out as cheaply and as quickly as possible (so the rent commences). They believe the quality of the buildout will suffer as a consequence.
If the landlord is handling the buildout, the tenant should get an estimated completion date, preferably both orally and in the lease. In addition to that estimated date, the tenant should try to negotiate for liquidated damages to accrue if the buildout is not completed by a certain date to incentivize the landlord to finish construction of the space on time. To be clear, this liquidated damages amount is something more than just a provision confirming that the rent won’t commence until the space is completed, but rather some additional stick (maybe additional rent abatement) in the event of a delay. The landlord may be able to pass this amount on to its contractor, who won’t agree to it unless it is doable. Therefore, the landlord’s agreement to such a provision will provide good information about the likelihood that the landlord will complete by the date selected. The tenant’s main risk in this process is likely that a prior tenant will hold over and cause a significant delay in the construction. For that reason, the tenant should also negotiate for a right to terminate if the space isn’t completed by a certain date. This date may be much further out—and the termination of a lease doesn’t provide a great remedy for the tenant because the tenant will have to find alternative space. But at some point, if the landlord doesn’t perform, the tenant needs to be able to get out of the lease.
The issue here, of course, is a little more complicated. The landlord may want to exclude any delays caused by the tenant and delays related to force majeure. What constitute a tenant delay and force majeure delay need to be carefully evaluated.
Tenant Should Consider Adding Covenants Regarding Quality of Work
If the landlord is handling the buildout, the tenant should consider adding covenants regarding the quality of work to be provided. Some lease agreements will provide that the landlord warrants that the tenant improvements will be (a) free of defects in design, materials, or workmanship; (b) constructed in a good and workmanlike manner by competent and supervised workers and suppliers; (c) in accordance with approved working drawings, subject to minor deviations that do not affect the usefulness or quality of the improvements; and (d) in accordance with all federal, state, and local laws, and all applicable covenants, conditions, and restrictions of record. These are the same warranties, in some shape or form, the landlord should receive collectively from its contractors and designers, so it seems reasonable for a tenant to request that these warranties be passed along.
Exit Strategies (Assignment and Subletting)
Especially with a long-term lease, it is quite possible that, despite good planning by the tenant, there will come a time when the tenant does not need all the space it has leased or any of the space, or that it will need to reduce its costs for economic reasons or to transfer rights to the space as part of a business transaction. Accordingly, the right to assign or sublease the space— and the approval standard of the landlord regarding the assignment or sublease—is a pretty significant right for the tenant to preserve.
Tenant Should Require That Landlord Not Unreasonably Withhold, Condition, or Delay Consent to Assignment or Sublet
Unless the lease prohibits assignment or subletting altogether (which would be unusual) or gives the landlord the right to withhold its consent to a request for assignment or subletting in its sole and absolute (or arbitrary) discretion, the case law is probably moving toward an implied obligation for the landlord to act “reasonably” and in “good faith” concerning any request to approve an assignment or subletting. In other words, if the lease states that the tenant may assign or sublease the premises with the prior consent of the landlord but does not allow the landlord to withhold consent in its sole and absolute (or arbitrary) discretion, then if Tennessee follows the trend in the law, the landlord is likely going to be held to a reasonableness standard. And it will be an objective standard as to whether its basis for saying “no” to the requested assignment or sublease was reasonable. See Restatement (Second) of Property, Land. & Ten. § 15.2 (prohibits a landlord from arbitrarily and unreasonably withholding consent to a proposed assignment or subletting unless such a right is freely negotiated and expressly stated in the lease); Pestana v. Kendall, Inc., 709 P.2d 837 (Cal. 1985).
Nevertheless, not all jurisdictions follow that rule, so with respect to negotiating the assignment or sublet clause, the tenant’s practical approach here should be to request that “Tenant shall have the right to sublease or assign all or any portion of the Premises with landlord’s prior consent, which will not be unreasonably withheld, conditioned, or delayed.” In other words, the tenant should require that any consent to an assignment or sublet not be unreasonably withheld (or conditioned or delayed) by the landlord. In addition, the tenant should consider adding a specific time period in which the landlord must respond or be conclusively deemed to have consented to such consent or sublease. A long-delayed landlord’s consent can be problematic for any assignment or sublease transaction.
The tenant should also consider the “Permitted Use” clause in the lease in making this request. A prospective assignee or sublessee will need to comply with the “Permitted Use,” so the broader the permitted use rights the tenant can negotiate, the greater the tenant’s right to sublease or assign. The landlord should be able to “reasonably” deny a request to assign or sublet to a third party who cannot comply with the use of the premises allowed by the lease.
There are two caveats that the real estate professional must consider. First, the lease will sometimes grant the landlord specific criteria that constitute a reasonable basis for rejecting an assignee or sublessee. The real estate professional needs to review these criteria and ensure they are not too broad in giving the landlord discretion to withhold its consent. Second, the real estate professional needs to make sure the lease does not limit the tenant’s remedies against the landlord to injunctive relief. If the tenant’s remedies are so limited, then it does not have a reasonable remedy because, by the time the tenant gets to court and obtains a judgment that the landlord’s conduct was unreasonable, the prospective assignee or sublessee will likely have moved on to other space.
Tenant Should Negotiate That Certain Transfers Can Be Made Without Landlord’s Consent
The tenant should try to negotiate the ability to transfer the lease to facilitate certain corporate transactions, business reorganizations, and affiliate transfers. The tenant does not want to be in a position where its significant business transaction—a sale of all the assets, merger, or transfer of stock— requires landlord consent. Accordingly, the tenant should negotiate a “permitted transfer” definition into the lease and clarify that an assignment or sublease, in whole or in part, can occur without landlord consent in a transaction involving a permitted transfer. The lease should exclude permitted transfers from other restrictions—recapture rights, sharing of profits, etc.
Operating Expenses
The lease can require the landlord to pay all operating expenses (call this a “gross lease”), or the tenant to pay all operating expenses (call this a “net lease”). The operating expenses are usually shared between the landlord and the tenant, however, with the tenant bearing responsibility for its proportionate share of the increase in operating expenses over the operating expenses in a base year (call this a “modified gross lease”). The tenant’s proportionate share is usually the ratio of the total square footage of the premises to the total square footage of the building. The square footage of the premises and building may be an agreed amount and, therefore, an agreed-upon proportionate share (which is the landlord’s preference). In the alternative, the premises may be subject to measurement and remeasurement following industry standards, such as the Standard Method of Measuring Floor Area in Office Buildings, ANSI Z65.1, commonly known as the BOMA Standard.
Regardless of a lease’s size, the real estate professional needs to be concerned with the breadth of the definition of operating expenses. Some key items for the tenant of a small lease to consider follow.
Negotiate the Definition of “Operating Expenses” and Exclude Most Capital Items
Most operating expense clauses include a general definition of what the landlord can include, followed by a nonexclusive list of specific inclusions and exclusions. The tenant should try to narrow the general definition so it is a balanced provision. For example, the tenant should try to limit operating expenses to the reasonably necessary and appropriate expenses of “operating, maintaining, and managing” the building (net of recoveries and reimbursements) and eliminate broad provisions that include the expense of ownership or replacement. Another approach is to include a broad, catch-all exclusion for any expense that, under generally accepted accounting principles, would not normally be passed through as an operating expense by the landlord of a similar building.
Capital items and replacements should be excluded because most capital items tend to benefit the landlord in its ownership of the building. The landlord will receive the profit generated from the capital items—either in more rent or a greater sales price—and the tenant may benefit only marginally from such improvements. The common exceptions to these items are capital repairs or replacements required by new laws (or new interpretations of old laws) and capital repairs and replacements that reduce or are intended to reduce operating expenses. The cost of any included capital item should be amortized over the expected life of the asset. See John Wood & Alan M. DiSciullo, Negotiating and Drafting Office Leases § 29.01 (provides a listing of some of the most important exclusions from the tenant’s perspective).
Negotiate a Year-to-Year Cap on Controllable Operating Expenses
The costs of many operating expenses are within the landlord’s control. The tenant, therefore, may be able to negotiate a cap on the increase of these controllable operating expenses. The definition of controllable operating expenses is negotiable, but typically it is all operating expenses other than certain excluded expenses, including taxes, insurance, and utilities.
Whether the cap on controllable operating expenses is on a year-to-year basis or a cumulative basis is also negotiable. The landlord will want this to be on a cumulative basis, meaning that the historical average of such controllable operating expenses controls the determination of whether the increased controllable costs exceed the cap. By testing the cap on a cumulative basis, the landlord can offset low controllable costs in some years with much higher controllable costs in other years and still fit within the cap. The tenant, on the other hand, prefers the cap to apply on a year-to-year basis.
Be Aware of the Occupancy Levels of the Building When Tenant Lease Begins and Confirm Landlord Will Gross Up Variable Operating Expenses in Base Year
By way of background, certain operating expenses vary based on the level of a building’s occupancy. Some of these “variable operating expenses” or “occupancy-dependent” operating expenses may include such costs as cleaning, electricity, garbage removal, and HVAC. Fluctuations in occupancy, therefore, can lead to increases and declines in total operating expenses, which are the sum of the occupancy-dependent (variable) operating expenses and nonoccupancy-dependent (fixed) operating expenses—that is, those that don’t rise and fall with occupancy.
A landlord’s standard lease often includes a right to gross up “variable occupancy expenses” so they reflect the expenses the landlord would have incurred had the building been 95 percent occupied or fully occupied. This is a fair provision that allows the landlord not to come out of pocket simply because the tenant is required to pay only its proportionate share of those expenses when it is receiving all the benefit (or a much higher benefit) of those variable services. See Mark Senn, Commercial Real Estate Leases: Preparation, Negotiation and Forms § 7.04 (5th ed. 2012).
If the variable operating expenses are not grossed up in the base year when occupancy is low, then the tenant’s proportionate share over the base year will be higher than it should be when the occupancy level increases (or if the landlord can gross up these expenses in a later year). Accordingly, if this could be an issue, legal counsel should make sure during the base year that the owner grosses up all occupancy dependent expenses (variable operating costs) and the costs of all services and utilities that other tenants are paying separately—such as tenants paying their electric bills directly to their utility company. If those expenses and costs are grossed up only after the base year but not during the base year, the tenant could end up paying a much larger share of increases in operating expenses over the base year.
One practical approach for tenants in a small lease transaction is to ask about the occupancy in the building during the base year—assuming the tenant is just paying operating expenses above a base year. If the building is almost fully occupied, and the size of the lease is quite small, then maybe the concern here is not that great. Maybe, in this case, the real estate practitioner gets data for a few years of historical operating expenses. If it looks reasonable, it moves on to other issues. If there is concern about the occupancy level (or occupancy is low), however, the real estate professional should consider negotiating a gross-up provision into the lease (if it is not already there) and make sure it applies to the base year.
Lease Should Give Tenant Express Right to Audit Books and Records
The tenant should also ensure that the lease provides acceptable audit rights. Although the tenant may have a right to audit under common law, it is preferable to have an acceptable express provision in the lease rather than to be required to go to court to argue about the parameters of a common law right. The right to audit the books and records with respect to operating expenses needs to be available for a reasonable period of time after receiving a reasonably detailed statement describing the operating expenses. The provision should identify who has the right to conduct the audit, and it should include members of the tenant’s staff (i.e., its own facility manager or accountant)
as well as third-party experts (certified public accountants, etc.; however, you probably don’t want to limit this to a CPA working for a national accounting firm). The provision should require that the tenant’s statement shall be appropriately adjusted and that any overpayment be credited or refunded to the tenant if the audit reveals an overpayment. In addition, the tenant should request that in the event of an error over a certain amount (maybe five percent), the tenant should be reimbursed by the landlord for its fees and audit expenses.
Notice, Cure Rights, and Mitigation
In addition to the obligation to pay rent, the typical lease includes a number of covenants, rules, regulations, and restrictions with which the tenant must comply. Because the breach of any of these provisions is a default, the tenant should seek to negotiate a reasonable grace period and the right to receive notice from the landlord and an opportunity to cure it before any breach becomes an “event of default” that allows the landlord to exercise remedies. The ramifications to the tenant arising out of the loss of a lease can be devastating to its business. Therefore, the tenant needs to have some ability to receive notice and an opportunity to cure defaults before the landlord has the right to terminate the lease or otherwise exercise remedies.
Although it is difficult to negotiate remedies after an event of default, the tenant should watch out for a remedy that allows the landlord to terminate the lease and declare all future rent immediately due and payable (discounted to the present at some interest rate). With such an acceleration remedy, the tenant needs to modify the clause so it is reduced by the fair rental value of the premises for the remainder of the term, discounted in a way similar to future rent. Without a reduction for fair rental value, the landlord gets a windfall; it gets both a return of the leased premises free and clear of the lease (and can then try to release the space), plus all the rent that would have been paid into the future had the premises actually been leased and occupied. Some jurisdictions by statute have recognized the need to reduce the landlord’s damages by the fair value of the leased premises and have included such into its calculation of damages. See, e.g., Cal. Civ. Code § 1951.2.
Insurance, Mutual Waiver of Claims, and Waiver of Subrogation
The professional reviewing and negotiating the small lease must consider the insurance requirements and confirm that there is a mutual waiver of claims and waiver of subrogation by the insurer. As to the insurance requirements, the practitioner should send the appropriate sections of the lease with such requirements to the insurance advisor for the tenant to review and comment. The failure to carry the appropriate insurance coverages is a default under the lease and one that technically may not be curable because obtaining the insurance is not possible (or not curable per the terms of the lease) or curable only by significant out-of-pocket expense to the tenant in obtaining such coverage. The insurance advisor, however, needs to also consider whether there are appropriate insurance coverages in place to cover the allocated risks, perhaps with the practitioner’s help. For example, if there is a casualty to the building and the lease does not terminate, does the rent abate during the period of restoration? What about an event that prevents access or use of the premises even if not damaged by fire? If rent does not abate in these situations, the tenant needs to have business interruption insurance in place to cover the continuing rent obligation for the longest reasonable restoration period. Another example would be leasehold improvements— who owns those according to the lease during the lease term, and which party has an obligation to insure them against casualty?
The professional representing the tenant also needs to review the lease and confirm that it contains an appropriate mutual waiver of claims and the requirement that the insurer waives its right of subrogation. A well-drafted landlord lease probably will contain such provisions, but if it does not, then the tenant needs to negotiate an appropriate provision. The point of these clauses is to ensure that the parties look to the property insurance coverages in place (or that are supposed to be in place) to cover the loss or damage to property and not to allocate the loss to the party whose acts or negligence caused the loss or damage. If the parties look to negligence to allocate responsibility for the loss or damage, then duplicative insurance would need to be carried to cover each party’s own negligence, which is inefficient and costly. Moreover, the small tenant in a large office building probably cannot obtain property insurance on the entire building to insure a loss that its negligence might cause. Even if it could, that should not be necessary if the landlord already has such coverage in place and the tenant is paying its pro-rata share of the cost of the coverage.
The issue is a little more complicated than just including the mutual waiver of claims and the waiver of the right of subrogation. Other lease provisions need to be considered as to whether they are consistent with the mutual waiver of claims. For example, does the casualty provision provide that rent will abate during the period of restoration unless caused by the tenant’s negligence? Unless caused by the tenant’s negligence, the clause is inconsistent with the mutual waiver of claims and waiver of subrogation and should be deleted. For more detail, see, e.g., William L. Nussbaum, The Three-Legged Stool: The Interplay of Property Insurance, Mutual Waivers and Waivers of Subrogation in Commercial Leases, 31 The Fee Simple, no. 1, Nov. 2010, at 24.
Other Miscellaneous Considerations (Renewal Rights and SNDAs)
Another important right a tenant might ask for in a lease is a right to renew or extend the lease, usually on the same terms and conditions—except rent, which likely increases based on some adjustment factor or adjusts to the fair market rental rate. The easiest place for the landlord to find a prospective tenant is among its existing tenants (suggesting perhaps that a renewal right is not necessary), but there is always the risk that events could happen—like a larger prospective tenant having an interest in the same space and more—that create a disincentive for the landlord to negotiate an amendment extending the lease. The renewal right provides protection for the tenant from these events because it gives the tenant the unilateral right to extend the lease. Subject to the conditions to exercise, the landlord has no ability to prevent the tenant from extending the lease. The issues involved with the negotiation of a renewal right are beyond the focus of this article, but it is worth noting that the tenant needs to carefully consider the conditions to the exercise of the renewal or extension and the rental rate applicable to the renewal term.
The tenant should also consider asking the landlord to obtain a nondisturbance agreement from its existing lender if that lender has an existing mortgage on the property. In a nondisturbance agreement, the landlord’s lender agrees that if the lender forecloses and takes ownership of the real estate, such ownership is subject to the lease, and such lender will recognize and agree to be bound by the tenant’s lease in accordance with its terms. This is necessary because when the lender’s mortgage or deed of trust is recorded before the lease, such a mortgage has priority over the lease. In the absence of a nondisturbance agreement, the foreclosure of the mortgage could lead to a termination of the lease. For a small lease, the landlord is probably not going to want to spend the time and money pursuing such an agreement from its lender, and the lender will be more reluctant to provide such an agreement to a small tenant; the lender may not want to agree on the front end that it won’t terminate the lease should it foreclose. That said, there are circumstances—usually when significant improvement expenditures have been incurred by the tenant—where obtaining such an agreement is crucial to the tenant. In such cases, the tenant may want to negotiate this document as a condition precedent to the lease’s execution.
Conclusion
In conclusion, the prospective tenant should have a lawyer review even a short-term or small lease agreement. Because the landlord will be reluctant to negotiate too many points, the lawyer must be careful to raise only the most important ones. Although those issues may vary a little bit based on the tenant’s business needs and the type of lease, a few issues should always be considered. These include issues governing the responsibility for construction, the improvement allowance and the timing of completion of the buildout, and the rent commencement date. Assignment and subletting matters, which include requiring the landlord to act “reasonably” with respect to approving assignments and subleases and permitting assignments and subleases to affiliates or as part of larger business transactions without landlord consent, are also important. The breadth of the operating expense provisions needs to be reviewed and negotiated. The tenant should consider requesting a cap on controllable expenses and limiting the kinds of capital expenses that can be passed through to the tenant. The tenant should also negotiate notice and cure rights with respect to defaults, request a right to renew the lease, and be careful to ensure that the lease contains a mutual waiver of subrogation and has insurance requirements that can be met.
