In a prior post on the A.I.R. Forms Practitioner, I addressed the question: Should landlords use the AIR lease form? For landlords that decide to utilize the AIR lease with modifications, below are some of the modifications to the AIR lease that I sometimes include.
- Transfer Premium: Particularly for longer term leases, I often include a “transfer premium” provision. A transfer premium provision provides that if the tenant subleases or assigns the lease, and if the sublease rent is higher than the rent that the tenant is paying to the landlord (on a per square foot basis), the tenant must split this “profit” 50/50 with the landlord.
- Capital Expenditures (gross leases): Some landlord clients wish to modify the treatment of capital expenditures to do the following: (1) to include items such as roof replacement and parking lot paving as operating expenses (rather than excluding them); or (2) reducing the amortization period of 12 years, or giving the landlord reasonable discretion to determine the amortization period based on the useful life.
- Insurance: The AIR lease requests that tenants provide general liability insurance coverage of $1,000,000 per occurrence and $2,000,000 in the aggregate. Depending on the nature of the tenant’s operations, some landlords request higher coverage amounts.
- Recapture Right: When a tenant is attempting to sublease or assign, the AIR lease does not allow landlords to recapture the premises (or the portion of the premises that is the subject of the sublease). Some landlords wish to add a recapture right.