R

Radius Restriction: In retail leases, a clause which prohibits a tenant from opening a similar or competing store within a defined area from the location of the leased premises. The intent of a Radius Restriction clause is to protect the sales of a tenant from the leased premises, and in many cases, the landlord has the right to include the sales from the similar or competing store with the sales from the leased premises in the calculation of Percentage Rent.

EXAMPLE: ABC Coffee is a tenant on the ground floor level of Ellipsis Tower which sells gourmet coffee from their premises to the general public. ABC is required to pay, in addition to Base Rent, Percentage Rent based upon the amount of Gross Sales from the premises. ABC's lease contains a Radius Restriction clause which prohibits ABC from opening a competing coffee store within a 2 block radius of Ellipsis Tower. Because of heavy demand within the area, ABC opens another store 1.5 blocks from their store at Ellipsis Tower. Due to the Radius Restriction clause within the Ellipsis Tower lease, the Landlord can pursue default remedies against ABC and can also require that ABC include sales from the competing store in the computation of Gross Sales from Ellipsis Tower for purposes of calculating Percentage Rent.

Real Estate Taxes: Amounts payable to taxing authorities for the right to own land and/or buildings on property located within the boundaries of such authority.

Recapture (Percentage Rent): Amounts payable by the tenant pursuant to a lease which may be offset against Percentage Rent due. Examples include the recapture of real estate or common area maintenance charges paid against Percentage Rent, or the recapture of tenant improvement dollars paid by the tenant against Percentage Rent.

EXAMPLE: ABC Retail Tenant's lease contains a clause which allows ABC to recapture amounts paid for their real estate tax and common area maintenance reimbursements against Percentage Rent. During the current year, ABC is required to pay $12,000 for real estate tax and CAM reimbursements and, because of strong sales, $20,000 for Percentage Rent. However, because of the Recapture provision within ABC's lease, ABC is required to pay only $8,000 for Percentage Rent.

Recapture (Sublease/Assignment): The right of a landlord to terminate the lease for space for which a tenant has presented notice of its intent to sublease and/or assign. If recaptured, the tenant no longer has any rights or obligations related to the space as of the recapture date. In some leases, the tenant has the option to rescind their notification of intent to sublease and/or assign if the landlord exercises their recapture right.

EXAMPLE: ABC Tenant is leasing 10,000 sq. ft. in Ellipsis Tower, of which 2,500 sq. ft. is not currently being used for business purposes. In accordance with their lease, ABC sends written notification to the Landlord of their intent to offer the 2,500 sq. ft. for sublease. Because ABC's lease is below market and the Landlord feels that they could generate a higher rent by re-leasing the space, they would like to terminate ABC's lease in regards to the 2,500 sq. ft. Upon review of ABC's lease, the Landlord learns that the sublease clause has a provision allowing the Landlord to recapture the proposed sublease space upon notice to tenant within 30 days of receipt of tenant's notice of intent to sublease.

Reconciliation Billing: Also called a 'True-up Billing', reflects a billing to tenants for the difference between estimated payments made by the tenant for an item of Rent (usually Expense Recoveries) and the actual payment due. Reconciliation Billings are made to a tenant after the landlord has determined the actual amounts to be billed in accordance with the lease provisions.

EXAMPLE: ABC Tenant's lease allows the Landlord to estimate recoverable expenses for the upcoming year and bill the ABC monthly for expense recoveries based upon such estimate. The lease also provides that within 120 days after year-end, the Landlord must reconcile recoverable expenses actually incurred against the estimate used for billing purposes, and either refund excess payments made by ABC back to ABC or bill ABC for deficiencies in estimated payments. During the year, ABC made estimated payments of $300 per month for recoverable expenses. Within 120 days after year-end, the Landlord determines that ABC should have paid $4,000 for the previous year based upon recoverable expenses actually incurred. The Landlord sends ABC a Reconciliation Billing indicating that ABC owes an additional $400 for expense recoveries for the previous year.

Recovery Pool: Operating Expenses of a property which may be passed through to tenants in accordance with the terms of their respective leases. Many leases will include a listing of specific expenses which may be included and which must be excluded from the pool.

EXAMPLE: The Expense Recovery section of ABC Tenant's lease indicates that in the calculation of recoveries, the Landlord may recover from ABC 'all expenses incurred for the operation, management, repair and maintenance of Ellipsis Tower, but specifically excluding a) depreciation; b) mortgage interest and ground rental payments; c) expenses incurred for Landlord's general corporate overhead; and d) capital expenditures, except for those as required by governmental regulations'. The expenses of Ellipsis Tower which fall within the parameters of this definition comprise the Recovery Pool.

Refurbishment: An allowance granted to a tenant subsequent to the commencement date of their lease to be used for the purpose of improving the leased premises. Refurbishment allowances are most often granted in long term leases, whereby the tenant may improve the appearance of the premises at a defined date during the lease term. In some instances the allowance is stipulated as a dollar amount or a dollar per square foot amount to be used at the discretion of the tenant; in other cases, the landlord will agree to provide certain improvements to the premises at their cost, such as repainting and recarpeting.

EXAMPLE: ABC Tenant would like to sign a ten-year lease for space at Ellipsis Tower, but is concerned that after five years the space would appear run down for the remainder of the term. As an inducement to ABC to sign the long term lease, the Landlord agrees to provide a $5.00/square foot Refurbishment Allowance to be used by ABC in their discretion at any time during the sixth lease year to improve the appearance of the premises.

Relocation Option: An option granted to a landlord to change the location of a tenant's premises upon landlord's provision of notification within a certain time period prior to the relocation date. In most cases, the landlord is responsible for all costs associated with relocating the tenant and improving the new premises. In addition, some leases provide restrictions as to the location in the building to which the tenant may be located, the layout of the relocation premises or the number of times during the lease term during which the landlord may exercise its option to relocate.

EXAMPLE: ABC Tenant is leasing 3,000 sq. ft. on the 8th floor of Ellipsis Tower. The 6th, 7th and remainder of the 8th floor are currently vacant. The Landlord receives an offer from a third party tenant to lease all of the space on the 6th, 7th and 8th floors. In order to execute this large lease, the Landlord would need to relocate ABC Tenant. Upon review of ABC's lease, it is learned that the Landlord has a Relocation Option whereby the Landlord may relocate ABC to comparable premises within the building so long as the Landlord pays for the costs of relocation and improving the new space, upon 30 days notice to tenant. The Landlord relocates ABC to 3,200 vacant sq. ft. on the 4th floor, and is now free to execute the large lease for floors 6 - 8.

Remedies: The rights granted to the landlord or tenant within a lease which that party may exercise in the event of a default by the other party.

EXAMPLE: The default clause within ABC Tenant's lease indicates that upon either monetary or non-monetary default by ABC, the Landlord may either a) terminate ABC's lease and require ABC to pay all amounts due plus the present value of all future amounts due under the lease; or b) terminate ABC's right to occupy the premises without terminating the lease, and offsetting rental amounts received from future leases executed by Landlord for such space against amounts due from ABC. These options would encompass Landlord's remedies in the event of default.

Renewal Option: The right of a tenant to extend the lease term for a specified period of time and at a pre-defined rental rate. In many instances, the rate is defined as a percent of market rent, and in others, the rate is a specified dollar amount or amount per square foot. An Auto-Renewal option is a form of Renewal Option whereby the lease term is extended automatically on the expiration date without any notification requirement.

EXAMPLE: ABC Tenant signs a five-year lease at Ellipsis Tower, but would like the comfort of knowing that they may remain in the building for an additional five years if they so desire at the expiration of the original five-year term. ABC negotiates a Renewal Option into their lease which allows them to extend the lease term for an additional five years upon 6 months notice to Landlord at the then current Market Rent.

Rent: Consideration paid by a tenant to a landlord for the right to lease real property. In the broadest sense, Rent includes any financial obligation of tenant payable to the landlord, including Base Rent, expense recoveries, utilities, percentage rent, CPI adjustments and late fees.

Replacement Cost: The cost of replacing an improvement with one having the same utility. Replacement cost is often used to define the required coverage under All-Risk insurance policies.

Restriction: A limitation placed upon the use of the leased premises. Lease documentation may impose use restrictions on both the landlord (restricts the landlord from leasing space to certain tenants) and the tenant (restricts the tenant from using the premises for certain purposes).

EXAMPLE: ABC Tenant is a national provider of accounting services. In their lease at Ellipsis Tower, they require the Landlord to include a clause that they can be the only tenant in the building to provide accounting services throughout their lease term. In order to enforce this clause, the Landlord includes a use Restriction clause in all future leases which it executes at Ellipsis Tower prohibiting future tenants from using their premises to provide accounting services.

Right of First Offer: Also called a 'ROFO', a right granted to the tenant to lease additional, pre-defined space when such space becomes 'available for lease' and before such space is offered on the open market. Typically, the landlord has the obligation to notify the tenant that the space is available for lease, and the tenant has a pre-defined period of time after receipt of such notice to either accept or reject the offer. Rent for space leased via a Right of First Offer is typically market rent.

EXAMPLE: ABC Tenant signs a five-year lease for 10,000 square feet in Suite 500 at Ellipsis Tower, but is concerned that more space will be needed prior to the expiration of the term to accommodate the growth in their business. ABC negotiates a Right of First Offer with the Landlord whereby the Landlord must offer any space on the 5th floor which becomes available for leasing to ABC prior to offering such space to a third party. ABC has 5 days from receipt of Landlord's offer to accept the space on the terms outlined in Landlord's offer. This is an example of a ROFO, whereby ABC's right to expand is contingent upon space becoming available for lease.

Right of First Refusal: Also called a 'ROFR', a right granted to the tenant to lease additional, pre-defined space after a bona-fide offer has been received from a third party for such space. Typically, the landlord has the obligation to notify the tenant of receipt of the bona-fide offer and the terms contained therein, and the tenant has a pre-defined period of time after receipt of such notice to either lease the space on the terms contained in the third party offer or to reject the space.

EXAMPLE: ABC Tenant signs a five-year lease for 10,000 square feet in Suite 500 at Ellipsis Tower, but is concerned that more space will be needed prior to the expiration of the term to accommodate the growth in their business. ABC negotiates a Right of First Refusal with the Landlord whereby ABC has the right to refuse a deal for any space on the 5th floor for which Landlord has received a bona-fide offer to lease from a third party tenant. ABC has 5 days from receipt of Landlord's notice of intent to lease to accept the space on the terms contained in the third party tenant offer. This is an example of a ROFR, whereby ABC's right to expand is contingent upon Landlord receiving a bona fide offer to lease the encumbered space from a third party tenant.