THE FLEXIBLE TENANT LEASE

T. ANDREW DOW, ESQ.
Winstead Sechrest & Minick P.C.
5400 Renaissance Tower
1201 Elm Street
Dallas, Texas 75270
214-745-5400

BROOKE J. REID, ESQ.
Winstead Sechrest & Minick P.C.
5400 Renaissance Tower
1201 Elm Street
Dallas, Texas 75270
214-745-5400

State Bar of Texas
28^TH ANNUAL ADVANCED

REAL ESTATE LAW COURSE
June 29-July 1, 2006
San Antonio

CHAPTER 43

TABLE OF CONTENTS

I..... INTRODUCTION...................................................................................................................................... 1

II.... CREATING FLEXIBILITY WITH RESPECT TO LEASE TERM............................................................... 1

A. Commencement Date Issues................................................................................................................. 1

B. End of Term Issues............................................................................................................................... 1

1. Renewals...................................................................................................................................... 1

2. Holdovers...................................................................................................................................... 2

3. Condition of Space at End of Term................................................................................................. 2

4. Time to Move Out......................................................................................................................... 2

C. Early Termination Rights....................................................................................................................... 3

1. Unfettered Right............................................................................................................................ 3

2. Failure to Meet Sales Hurdle.......................................................................................................... 3

3. Failure of Conditions Precedent...................................................................................................... 4

III... CREATING FLEXIBILITY WITH RESPECT TO THE PREMISES............................................................ 4

A. Expansion Rights.................................................................................................................................. 4

B. Right of First Refusal and Right of First Offer........................................................................................ 4

C. Contraction Rights................................................................................................................................ 5

IV.. CREATING FLEXIBILITY WITH RESPECT TO USE AND OPERATION............................................... 5

A. Permitted, Prohibited, and Exclusive Uses.............................................................................................. 5

1. Tenant's Exclusive Use Rights........................................................................................................ 5

2. Permitted and Prohibited Uses........................................................................................................ 5

B. Construction and Alterations.................................................................................................................. 6

1. Control Over Work........................................................................................................................ 6

2. Allowance..................................................................................................................................... 6

C. Signage................................................................................................................................................ 6

D. Operating Covenants............................................................................................................................. 7

1. Disclaimer of Operating Covenant.................................................................................................. 7

2. Limited Operating Covenants.......................................................................................................... 7

3. Recapture Right............................................................................................................................. 7

E. Radius Restrictions............................................................................................................................... 7

F. Late Term Repairs................................................................................................................................ 7

G. Insurance Requirements........................................................................................................................ 8

1. Self-Insurance............................................................................................................................... 8

2. Waiver of Claims/Waiver of Subrogation......................................................................................... 8

3. Allocation of Risk.......................................................................................................................... 8

H. Landlord Defaults, Self-Help and Offset................................................................................................. 8

1. Default by Landlord....................................................................................................................... 8

2. Self-Help and Offset...................................................................................................................... 8

3. Offset Rights................................................................................................................................. 9

I. No Build Areas..................................................................................................................................... 9

V.... CREATING FLEXIBILITY WITH RESPECT TO TRANSFERS - ASSIGNMENT AND SUBLETTING..... 9

A. The Right to Transfer............................................................................................................................ 9

B. Landlord's Consent.............................................................................................................................. 10

C. Review Costs..................................................................................................................................... 10

D. Tenant's Continuing Liability................................................................................................................ 10

E. Excess Rent....................................................................................................................................... 10

F. Landlord's Recapture Right.................................................................................................................. 10

G. Other Lease Provisions....................................................................................................................... 11

VI.. CREATING FLEXIBILITY WITH RESPECT TO LEASE COSTS............................................................ 11

A. Cost of Tenant Improvements.............................................................................................................. 11

B. Security Deposits vs. Letters of Credit vs. Guaranty.............................................................................. 11

1. Security Deposits......................................................................................................................... 11

2. Letters of Credit.......................................................................................................................... 12

3. Guaranty..................................................................................................................................... 12

C. Base Rents vs. Percentage Rent.......................................................................................................... 12

VII. CONCLUSION......................................................................................................................................... 12

APPENDICES:

Appendix 1 - Commencement Date

Appendix 2 - Early Termination Right

Appendix 3 - Exclusive Provision

Appendix 4 - Operating Covenant

Appendix 5 - Self-Insurance

Appendix 6 - Assignment And Subletting