Basic Leasing Law Concepts Presented By: Andy Jacobson, Maslon LLP Howard Lind, Wendel Rosen Black & Dean, LLP

TOPICS FOR DISCUSSION 3 General Legal Concepts The Nature of a Retail Lease Basic Components of the Lease Parties Premises & Shopping Center Term Rent Use Transfers

General Concept #1 The Law has Multiple Layers -- Real Estate Laws Vary from State to State Federal / State / Local Statutory, Regulatory & Common Law Variations by State Formalities of Execution Time is of the Essence Landlord’s Duty to Mitigate Damages

General Concept #2 Substance Usually Trumps Form “A rose by any other name would smell as sweet” [William Shakespeare] “When I see a bird that walks like a duck and swims like a duck and quacks like a duck, I call that bird a duck” [James Whitcomb Riley]

General Concept #3 Beware of the White Squirrel Majority & Minority Rules Bad Facts Make for Bad Law Sensational v. Mundane

WHAT IS A LEASE? Both a Contract and a Conveyance Key Defining Characteristics Tenant has exclusive possession, For a specified period of time, and At expiration, possession reverts to landlord. Also establishes non-real estate rights and obligations between landlord and tenant Operational requirements Attorneys Fees Financial Statements

THE PLAYERS Landlord & Tenant Master Landlords & Sublandlords Lenders / Mortgagees Assignors & Assignees Franchisors & Franchisees Guarantors

DESCRIPTION OF THE PREMISES Square Footage (Usable v. Rentable) Measurement / Remeasurement Exhibits with a plan of the Premises and site plan of the Shopping Center Adequate description of key common areas (e.g., parking, patios, restrooms, etc.) Legal Description of Premises / Center Address for Premises

LEASE TERM Delivery Date / Outside Delivery Date Commencement Date Fixturization Period Pre-Commencement Obligations Rent Commencement Date Expiration Date Option Terms / Exercise Dates Early Termination Rights

RENEWALS / EXTENSIONS Unilateral Right for Tenant’s Benefit Negative v. Affirmative Option Rights Fixed Rent v. Market Rent Watch for conditions to exercise option! Option windows monitoring is critical! Include all material terms to ensure enforceability!

USE OF THE PREMISES Permitted Use Spectrum Most Broad – Any lawfully permitted use More Restrictive – Designate prohibited uses Most Restrictive – Limited to specified use Exclusive Uses – Restricts other users Prohibited Uses – Restricts tenant’s use Radius Restrictions

CATEGORIES OF RENT Minimum Rent / Base Rent Percentage Rent Additional Rent (NNN) Operating Costs / CAM Real Estate Taxes & Assessments Insurance Costs Additional Rent (Other Charges) Marketing Charges Utilities HVAC Maintenance Rental or Transfer Taxes Other (e.g., Trash, Pest Control)

KEY TENANT COVENANTS Pay Full Rent on Time Operation for Specific Use Operate under Specific Name Continuous Operations Indemnity Maintain Insurance Maintenance & Repair

KEY LANDLORD COVENANTS Quiet Enjoyment (Right of Tenant not to be Disturbed in its Possession of the Premises) Structural and Common Area Repairs, Maintenance and Operations Access & Visibility Exclusive Possession for the Tenant

TRANSFERS - SUBLEASE An agreement between the Tenant (as Sublandlord) and a third party (as Subtenant) desiring to use some or all of the Premises for a portion of the remainder of the Term. Subtenant is not in direct contract with the Landlord. Subtenant pays its rent to Sublandlord and Sublandlord continues to pay rent under the Lease to Landlord. If the Master Lease is terminated, absent an agreement to the contrary by the Landlord, the Sublease automatically terminates.

TRANSFERS - ASSIGNMENT A transfer by the Tenant (as Assignor) of all of its remaining rights and obligations under the Lease to a third party (as Assignee). Following an assignment there is a direct contractual relationship between the Landlord and the Assignee. However, the Assignor typically also remains liable for the obligations of the Assignee under the Lease. Assignee pays rent and performs other Lease obligations directly to the Landlord.

TRANSFER ISSUES Standard for Landlord’s Approval/Consent Conditions to the Transfer Payments to Landlord (Transfer Fees, Bonus Rent) Tenant’s Right To Cure Defaults by the Assignee/ Sublessee Sale of Business & Corporate Level Transactions Recapture by Landlord Negotiate Expressly Permitted Transfers Going Public Sale of the business (stock or assets) Franchise related transfers

LEASE EXECUTION CHECKLIST Do you have the correct and authorized parties? Are the Premises and Shopping Center properly identified, including on all Exhibits? Are all exhibits completed and attached? Do the final basic deal points reconcile with the applicable Letter of Intent or deal sheet? Does the Lease (or Memorandum) need to be recorded? Beware of auto-kill and auto-option provisions.

QUESTIONS

Thank You Andy Jacobson, Maslon LLP andy.jacobson@maslon.com Howard Lind, Wendel Rosen Black & Dean, LLP hlind@wendel.com