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Wins & Insights

Tenant Leasing Illustrated – March 2015 – Condominium Provision of a Different Color

Condominium Provision of a Different Color

This was quite a bizarre year for professional football, from ever worse player transgressions, to the silliness of “deflategate”, then culminating in an incredible Super Bowl that broke all ratings records.

Following the old adage, it seemed that the more things changed, the more they remained the same.

Since at Leasing Illustrated we usually make a bee line for the low hanging fruit, you would expect us to focus on the New England Patriots being accused of deflating footballs to gain a playoff advantage.

But we are much more intrigued by Rex Ryan, the former New York Jets coach and someone who has no trouble handling a little change.

Proving that he wears his team loyalty on his sleeve (or in this case, forget the sleeve, directly on his arm), Rex got a tattoo a few years back with a design of his wife as a pinup girl wearing only a Jets jersey.

Maybe not so unusual; after all, don’t tell my mom, but I have a tattoo of my wife marking up a lease wearing only a pin striped suit and a tie with the Mintz & Gold logo. But I digress.

As fate would have it, Rex was recently fired by the Jets and signed on as coach of the Buffalo Bills. No worries for Rex, who simply said “you’ve got to turn the page” and headed back to the tattoo parlor to recolor the jersey from Jets green to Bills blue.

This guy knows how to go with the flow.

Being able to adapt to change is important for a commercial lease tenant too.

Landlords prepare for potential changes over the term of a lease and look to cover every conceivable circumstance.

For example, it is not unusual for an office or retail lease to include a provision governing what would happen if the landlord decides to convert the building into a condominium.

The landlord wants and/or needs to have the tenant consent to the condominium declaration, be allowed to have the Board of Managers of the condominium take over certain obligations, include condominium fees as operating expenses, and adjust the escalation provisions to reflect the dimensions of the newly formed condominium unit.

In order to avoid an adverse impact on their tenancy, tenants must not overlook these provisions as boilerplate or ignore them because the conversion is unlikely.

Make sure to cover the following six points so that your lease condominium provision does not leave a permanent mark:

  • Your landlord’s obligations should not decrease. Your lease should clearly state that the conversion will not diminish your landlord’s obligations or increase its rights under your lease.​

○​  You should be protected whether particular obligations will continue to be performed by your landlord or a purchaser of the condominium unit (often with respect to obligations to perform within the premises) or (y) by the Board under the condominium documents (often with respect to obligations to perform affecting the Building and Building systems outside of the premises).​

  • Your obligations should not increase. Your lease should also indicate that the conversion will not increase your obligations or diminish your rights under your lease.
  • Your costs should not increase. The conversion should not have the effect of increasing your escalations for operating expenses and real estate taxes or any other charges over the increases that reasonably could have been anticipated in the absence of the conversion. This is a subset of the prior two bullet points, but you want to be certain that your landlord is responsible for costs associated with the conversion, including your agreement to reasonably cooperate, and that costs precluded as direct costs do not sneak by you as indirect operating expenses.
  • Be careful with measurements. In the event of a condominium conversion, the percentages applicable to operating expenses and real estate taxes will need to be recomputed based on the size of your premises within the new condominium unit. Make sure that any such measurement is done in a manner consistent with the measurements used under your lease without an opportunity for your landlord to impose new measurements. You will also need to ascertain that the measurements of landlord’s condominium unit are consistent with other units in the building.
  • Obtain non-disturbance protection. Your landlord will require that your lease be subordinate to the condominium documents, but be sure to condition such subordination on receipt of a subordination non-disturbance and attornment agreement from the condominium providing in substance that as long as there is no uncurable material default under your lease, any foreclosure of the unit or other exercise by the Board of its rights under the condominium documents will not result in a termination of your lease or otherwise interfere with your rights. The “snda” should also cover the following:

○​  Your lease should not be subordinate to any lien in favor of the Board for common charges and/or assessments.

○​  No provisions of the condominium documents should diminish your rights or increase your obligations or diminish your landlord’s obligations or increase its rights (as provided above).

○​  You should be under no obligation to obtain any consent or approval of the Board under the condominium documents.

○​  The subordination should be subject to the terms of the condominium documents being consistent with the terms of your lease and, the event of any conflict between the two, the lease terms should control.

  • Landlord obligation to pursue remedies. If the condominium documents provide for performance by the Board of obligations that previously were those of your landlord, then your landlord must be obligated to cause the Board to perform. You should also consider having the right to pursue remedies against the Board yourself if your landlord is unable or unwilling to do so itself and charge the enforcement costs to your landlord.​

“I’m all in” is how Rex Ryan described his easy transition, but as he noted during this Valentine’s Day season, he takes change only so far: “the girl’s not changing. I’ve been married 28 years.” Follow our six suggestions and you will be all in with respect to any condominium conversion.​