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Rent

ContractStandards Analysis
 Article Type
  Purchase, License or Performance  Negotiated
The Rent clause governs the amount of consideration and the manner of payment for the tenant’s right to occupy the leased premises.


While complex and subject to wide variation, especially on the subject of additional rent, virtually every Rent clause addresses the same key issues, using a mix of common and unique language. They key issues are:
  • What is the amount of the base rent, both initially and in future years?
  • Are there additional charges beyond the base rent?
  • What are the logistics of payment (when due, to whom, in what format, etc.)?
  • What are the repercussions for late payment?
The standard clause language is substantially similar in many respects, but diverges in others. The most common area for divergence concerns Additional Rent, which may take various names and forms, including “Common Area Charges” (for multi-tenant leases), “Operating Expenses,” “Excess Expenses,” “Reimbursable Costs,” “Percentage of Gross Sales” (for retail leases) and others.

Standard Clause
Rent

(a) Base Rent. Base Rent [for the calendar year _____] is ______ Dollars [or the amount determined by multiplying the square footage of the Leased Premises times the rate per square foot specified in Schedule [ ]].

(b) Rent Adjustments. On each annual anniversary of the Rent Commencement Date Base Rent then in effect shall be increased [or decreased] by a percentage equal to the percentage increase in the CPI Index.

(c) Payment. Rent payments are payable in monthly installments of _____ Dollars due in advance, on the first (1st) day of each month during the Lease Term.

(d) Manner of Payment. Rent payable under this Lease shall be paid by check or wire transfer to Landlord without prior notice or demand therefore, and without deduction or setoff at the designated address, or any other place as Landlord may later designate.

(e) Late Charges [and Interest].

(i) If any payment of Rent is not received by Landlord within ___ [business] days of its due date, Tenant shall pay to Landlord a late charge in the amount of [fixed dollar amount or a fixed percentage of the Rent] (the "Late Charge") per occurrence.

(ii) Any amount due from Tenant to Landlord hereunder which is not paid within ___ [business] days after the date due shall bear interest at the lower often percent ___ [interest rate] per annum, or the maximum lawful rate of interest from the due date until paid.


Alternative Terms

Amount of Rent. Base Rent for the calendar year _____ is ______ Dollars [or the amount determined by multiplying the square footage of the Leased Premises times the rate per square foot specified in Schedule _]. Rent payments due hereunder are payable in monthly installments of _____ Dollars (“Minimum Monthly Rent”) due in advance, on the first (1st) day of each month beginning on the Rent Commencement Date [as defined in the Lease Term] and continuing thereafter during the Term hereof. Base Rent for any monthly period during the Term which is less than an entire month shall be pro-rated based on actual days divided by 30 [or the actual number of days in the month] and shall be paid on the first day of the next succeeding calendar month or on the Expiration Date, if earlier.

Additional Rent. All amounts that Tenant is required to pay to Landlord under this Lease, other than Minimum Monthly Rent, shall be deemed additional rent and referred to as Additional Rent. Minimum Annual Rent and Additional Rent shall be referred to collectively as Rent. All Additional Rent due under this Lease shall be payable concurrently with the monthly installments of Minimum Annual Rent, unless Landlord expressly in writing sets forth another time period for the payment of such Additional Rent.

Rent Adjustments. Commencing on the 1st day of January next following the Rent Commencement Date and on each January 1 thereafter (each such date a Rent Adjustment Date) the Minimum Monthly Rent then in effect shall be increased [or decreased] by a percentage equal to the percentage increase in the CPI Index.

CPI Index shall mean the Consumer Price Index presently designated as the United States Department of Labor, Bureau of Labor Statistics Consumer Price Index for all Urban Consumers, U.S. City Average [or for the local region], (Base 1982-1984 equals 100), for the month which is four (4) months prior to the Rent Adjustment Date compared to the Index published for the month which is sixteen (16) months prior to such Rent Adjustment Date. In the event that the statistics are not available or in the event that publication of the Consumer Price Index is modified or discontinued in its entirety, the adjustment provided for herein shall be made on the basis of an index chosen by Landlord as a comparable and recognized index of purchasing power of the United States consumer dollar published by the U.S. Department of Labor or other governmental agency. [Additional clause specifying precisely how the increase is calculated.]

Manner of Payment. Rent payable under this Lease shall be paid to Landlord or Landlord’s agent in lawful money of the United States of America without prior notice or demand therefore, and without deduction, defense, counterclaim, setoff or abatement [and without relief from valuation and appraisement laws], at the designated address, or any other place as Landlord may later designate, by check or wire transfer.

Right to Accept Payments. No receipt by Landlord of an amount less than the full amount due will be deemed to be other than payment on account, nor will any endorsement or statement on any check or any accompanying letter effect or evidence an accord and satisfaction. Landlord may accept such check or payment without prejudice to Landlord’s right to recover the balance or pursue any right of Landlord. No payments by Tenant to Landlord: (a) after the expiration or other termination of the Term will reinstate, continue or extend the Term; or (b) will invalidate or make ineffective any notice (other than a demand for payment of money) given prior to such payment by Landlord to Tenant. After notice or commencement of a suit, or after final judgment granting Landlord possession of the Premises, Landlord may receive and collect any sums of Rent due under this Lease, and such receipt will not void any notice or in any manner affect any pending suit or any judgment obtained.

Late Charge on Delinquent Payments. Tenant hereby acknowledges that late payment by Tenant to Landlord of Rent due hereunder will cause Landlord to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Such costs include but are not limited to processing and accounting charges and late charges which may be imposed upon Landlord by terms of any mortgage or trust deed covering the Premises. Accordingly, if any payment of Rent is not received by Landlord within ___ [business] days of its due date, Tenant shall pay to Landlord a late charge in the amount of [fixed dollar amount or a fixed percentage of the Rent] (the "Late Charge") per occurrence. The parties hereby agree that such Late Charge represent a fair and reasonable estimate of the cost that Landlord will incur by reason of the late payment by Tenant. This Section shall not relieve Tenant from its obligation to pay Rent at the times and in the manners herein specified. Acceptance by Landlord of the Late Charge shall not constitute a waiver of Tenant's default with respect to said delinquent payment, nor prevent Landlord from exercising any other rights or remedies available to Landlord. In addition to all other rights and remedies provided Landlord, all amounts payable hereunder which remain unpaid within ___ [business] days of its due date shall bear interest from that date to and including the date of payment, at the rate of [number] percent (__%) per annum, or the highest legal rate, whichever is lower.

Dishonored Checks. A charge of _____ Dollars shall be imposed for each dishonored check made by the Tenant to the Landlord. All Late Fees and dishonored check charges shall be due when incurred and shall be included as Additional Rent.

Optional Additional Clause Elements

Additional Rent Examples

Common Area Operating Expenses. Lessee shall pay to Lessor during the term hereof, in addition to the Base Rent, Lessee's Share (as specified in Paragraph ___) of all Common Area Operating Expenses, as hereinafter defined, during each calendar year of the term of this Lease, in accordance with the following provisions:

(a) "Common Area Operating Expenses" are defined, for purposes of this Lease, as alt costs incurred by Lessor relating to the ownership and operation of the Project, including, but not limited to, the following:

(i) The operation, repair and maintenance, in neat, clean, good order and condition, of the following: (aa) The Common Areas and Common Area improvements, including parking areas, loading and unloading areas, trash areas, roadways, walkways, parkways, driveways, landscaped areas, bumpers, irrigation systems, Common Area lighting facilities, fences and gates, elevators, roof and roof drainage systems, (bb) Exterior signs and any tenant directories, (cc) Fire detection and sprinkler systems.

(ii) The cost of water, gas, electricity and telephone to service the Common Areas and any utilities not separately metered.
(iii) Trash disposal, pest control services, property management and security services and the costs of any environmental inspections.
(iv) Reserves set aside for maintenance and repair of Common Areas.
(v) Real Property Taxes (as defined in Paragraph ___)
(vi) The cost of the premiums for the insurance policies maintained by Lessor under Paragraph __ hereof.
(vii) Any deductible portion of an insured loss concerning the Building or the Common Areas.
(viii) The cost of any Capital Expenditure to the Building or the Project not covered under the provisions of Paragraph ___ provided; however, that Lessor shall allocate the cost of any such Capital Expenditure over a reasonable period and Lessee shall not be required to pay more than Lessee's Share of the cost of such Capital Expenditure in any given month.
(ix) Any other services to be provided by Lessor that are stated elsewhere in this Lease to be a Common Area Operating Expense.

[Additional clauses concerning Common Area Operating Expenses.]

Certified Payments After Dishonored Check. Tenant agrees to pay all rents, late fees, all notice fees and all costs to honor a returned check with certified funds (Money Order or Cashier's Check). After the Tenant has tendered a check which is dishonored, Tenant hereby agrees to pay all remaining payments including rent due under this Lease by certified funds. Any payments tendered to Landlord thereafter, which are not in the form of certified funds, shall be treated as if Tenant failed to make said payment until certified funds are received.

Minimum and Maximum Rent Increase. Notwithstanding anything contained herein to the contrary, in no event shall Base Rent plus CPI Charges payable in any Lease Year increase at a rate less than ___ percent or at a rate more than ___ percent over the sum of the Base Rent plus CPI Charges payable in the immediately preceding Lease Year. Until Landlord shall have delivered to Tenant a statement of the adjustment in CPI Charges for a particular Lease Year, Tenant shall pay to Landlord, along with Base Rent, CPI Charges (plus value added tax) for such Lease Year based on the ___ percent minimum increase over the prior Lease Year’s payment of Base Rent and CPI Charges.

Fair Market Value Adjustment

(a) Effective on ___ __, 20__, and every _____ years thereafter ("Base Rent Reset Date"), either party may elect to reset the Base Rent to the fair market rate for the Premises on such date. Such election shall be made by giving the other party at least thirty (30) days written notice prior to such date.

(b) Fair Market Rate. The fair market rate shall be determined based on the rents being charged on a [triple-net] basis by landlords in similar office buildings in the geographical market within which the Premises are located as reasonably determined by the parties. In the event that Landlord and Tenant cannot agree on a fair market rate within thirty (30) days after the Term Commencement Date or Base Rent Reset Date, as the case may be, then each party shall appoint a licensed real estate appraiser who shall deliver a written appraisal of the fair market rate to both parties within sixty (60) days after the Term Commencement Date or Base Rent Reset Date, as the case may be. If only one of the appraisers delivers an appraisal within such period, such appraisal shall be final and binding on both parties. If both appraisers deliver appraisals within such period, and the higher is not more than one hundred ten percent (110%) of the lesser, then the average of the two appraisals shall be final and binding on both parties. If both appraisers deliver appraisals within such period, and the higher is more than one hundred ten percent (110%) of the lesser, then the two appraisers shall appoint a third licensed appraiser. The third appraiser shall select one of the two appraisals which better reflects the fair market rate for the Premises, and the appraisal so selected shall be final and binding on both parties.

Rent Concession. If Tenant occupies the Leased Premises for the purpose of preparing the Premises for their occupancy prior to the Rent Commencement Date, Tenant shall pay any utilities and any pro rated common area expenses from the date of occupancy to the Rent Commencement Date.

Discussion

A lease or rental agreement sets out the rules landlords and tenants agree to follow in their rental relationship. It is a legal contract, as well as an immensely practical document full of crucial business details, such as how long the tenant can occupy the property and the amount of rent due each month. Whether the lease or rental agreement is as short as one page or longer than five, typed or handwritten, it needs to cover the basic terms of the tenancy.

Here are some of the most important items to cover in your lease or rental agreement...

Rent. Your lease or rental agreement should specify the amount of rent, when it is due (typically, the first of the month), and how it's to be paid, such as by mail to your office. To avoid confusion and head off disputes with tenants, spell out details such as:

  • acceptable payment methods (such as personal check only)
  • whether late fees will be due if rent is not paid on time, the amount of the fee, and whether there's any grace period, and
  • any charges if a rent check bounces.
Ten Terms to Include in Your Lease or Rental Agreement (via NOLO)

While a tenant would like to fix the base rent for an extended period of time, most experienced landlords will insist on an escalation provision to account for inflation. In a down real estate market, however, the tenant should be able to negotiate for a fixed base rent for at two, if not three years. Rent escalations are often tied to one of the many indexes, the most common of which is the Consumer Price Index. Which index to use, whether to place a cap on any annual rental increase, and whether or not the rent will remain fixed for a certain number of years, are all negotiable items.

Although the amount of the base rent is an important consideration, it should not be the only consideration. Rent is usually comprised of multiple items: (1) Base Rent (stated monthly rent); (2) Operating Costs for Common Area Maintenance (a.k.a. Pass Through CAM expenses); and (3) Required Insurance. As stated above, the Base Rent is typically a fixed monthly fee, but many commercial leases also seek to require the commercial tenant to pay a proportional share of the landlord's operating costs incurred in connection with the management, operation, repair and maintenance of the property. This too is negotiable and a common trap for the unwary tenant who may not realize that these pass through operating expenses can substantially increase.

  
Melissa C. Marsh, California Commercial Lease Agreements – Traps For the Unwary Tenant and Landlord (via Law Office of Melissa C. Marsh)

Use Get-Tough Lease Clause to Discourage Chronic Late Rent Payments

“It’s exasperating when a tenant repeatedly violates the lease by failing to pay its rent on time but then cures—that is, fixes—each violation by paying the late rent before it becomes a lease default. The worst thing is that you can’t break the cycle: You waste time and money sending the
tenant violation notices and hounding it to pay you the rent. But you can’t get damages from the tenant or evict it, because the tenant pays the rent it owes before or during the lawsuit or before the eviction proceeding has been scheduled.

To help break the cycle of chronic late rent payments or to prevent it from ever starting, add a clause to each tenant’s lease that gives you four tough remedies against the tenant if it chronically pays its rent late. These remedies are in addition to any other remedies that the law or the lease may give you. Adding these remedies to your lease will most likely make a tenant think twice about paying its rent late. And if does so anyway, you’ll have both flexibility and strength in dealing with the problem.”

http://www.alblawfirm.com/siteFiles/News/1167983D554BC0EDD72C34875FE3AA56.pdf
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