This is the eleventh and second to last post in our series “The ABCs of Commercial Real Estate Leases”, and it’s a continuation of our look at lease clauses. In this post, we examine some common clauses that begin with the letters N- Z.

Notice Requirements

Notice Requirements explain the following for official notice from one party to the other:

  • The method of delivery (by hand, in writing, Overnight courier, USPS, etc).
  • How notice is deemed given (i.e., upon receipt or refusal, within 3 days after postmarked date, etc).
  • Are duplicate copies required to associated parties (i.e., legal notice, default notice, etc)? Often times, if the notice requirements are not followed, important communications (i.e. address change letters, option exercises, etc.) may be deemed invalid.

Important Information To Look For In Notice Requirement Clauses

  • Where notice is to be given
  • How notice is to be given
  • When notice is to be given.


The right of a tenant to lease a specified number of parking spaces. In some instances, the number of parking spaces to which tenant is entitled is based upon a specified parking ratio (i.e. two spaces per 1,000 square feet leased by the tenant).

Example of A Parking Clause

ABC Tenant executes a lease for 5,000 sq. ft. of space at Realogic Tower. The lease contains a parking clause that entitles ABC to two non‐reserved parking spaces for each 1,000 sq. ft. leased. Based upon this Parking Ratio, ABC would be entitled to 10 non‐reserved parking spaces.

Important Information To Look For In Parking Clauses

  • The number of spaces
  • Location of spaces
  • The cost of spaces
  • Type of spaces (reserved, unreserved, etc.)
  • Whether spaces are “must take” spaces or the tenant may decrease its number of spaces
  • The Termination Payment (if applicable)
  • Actions or conditions that nullify the right

Security Deposit

A deposit made by a tenant, in the form of cash, letter of credit or both, to secure the tenant’s performance of its monetary obligations under a lease and to offset damages due to the tenant’s negligence.

Example of A Security Deposit Clause

As a condition to leasing space in Realogic Tower, ABC Tenant is required to provide a cash security deposit equal to two months Base Rent. The Landlord retains the right to apply this deposit against any past due rent amounts, at which time ABC must replenish the deposit to its original amount or be in default under the lease.


The right of a tenant to provide identification of their company name in specified areas or the name of key employees on or within a building. Signage types include monument, facade, pylon, building lobby, floor lobby, suite entry and lobby directory.

Important Information To Look For In Signage Clauses

  • Monument sign rights
  • Lobby sign rights
  • Signage rights on exterior of Building
  • Pylon sign rights
  • When does loss of rights kick in (i.e. upon subleasing, upon reduction in square footage)


The process by which a person’s or entity’s claims rank below the claims of another party. In a lease transaction, the claims of a tenant against a landlord are often ranked below those of a mortgagee or a ground lessor; however, certain larger tenants will require subordination from a mortgagee or ground lessor. While subordination language is included in most leases, some leases obligate a landlord to obtain a ‘Subordination, Non‐Disturbance and Attornment Agreement’, whereby either the tenant or the mortgagee/ground lessor will formally agree to subordinate their claims to those of the other party.

Important Information To Look For In Subordination Clauses

  • Is the lease subject and subordinate to other entities?
  • Is a Non‐Disturbance agreement required for subordination of Tenant’s Rights?

Tenant Allowance

A monetary allowance granted from the landlord to a tenant to entice the tenant to move into the landlord’s building, which will enable the tenant to prepare the leased premises for the tenant’s occupancy. Tenant Allowances may include a tenant improvement allowance, moving allowance, space plan/drawing allowance and/or lease buyout.

Examples of A Tenant Allowance

Tenant Improvement Allowance: To induce ABC Tenant to execute a lease at Realogic Tower, the Landlord offers ABC a $20.00/sq. ft. tenant improvement allowance.

Refurbishment Allowance: 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 re‐carpeting.

Important Information To Look For In A Tenant Allowance Clause

  • Dollar Amount (Total dollar amount / amount per rentable sq. ft. / amount per usable sq. ft.)
  • Terms (Scope of work and what space it impacts)
  • Whether the unused portion accrues to the benefit of the Landlord or Tenant (If it accrues to the Tenant, is it a cash payment or credit against rent?)
  • Note any deadlines / date restrictions on use
  • Is Allowance a cash allowance paid directly to the Tenant?
  • If it is a future Allowance, be sure to note the date that the Allowance takes effect
  • Are the improvements done on a “turnkey” basis with no dollar amount stated?

True Up

Also called a ‘Reconciliation Billing’, a True Up is 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 of A True Up Clause

ABC Tenant’s lease allows the Landlord to estimate recoverable expenses for the upcoming year and bill 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.

Important Information To Look For In A True Up Clause

  • Dates by which the Landlord must complete true‐ups and the consequences to the Landlord if such dates are not achieved
  • Whether the Landlord or Tenant is required to pay interest on overpayment / underpayment of estimated expenses (rare, but this may be contained in heavily negotiated leases for large tenants)

Use Provision

A clause that defines the business activities that may be conducted by a tenant within their leased premises. This clause can describe limitations on the Landlord with regard to general usage of the property.

Example of A Use Provision

ABC Tenant is a national provider of accounting services. In their lease at Realogic Tower, the use clause is defined as ‘the provision of accounting services and any other general office purposes.’

Use Restrictions

The Use Clause typically defines the uses restricted for the Tenant, and either limits the use to a specific type or carves out provisions for permitted uses. From a Landlord’s perspective, failing to limit a tenant’s use of a property could result in devaluation and the inability to rent adjoining space and land. From a Tenant’s perspective, ensuring a viable business environment, free of direct competition, is a major component of its success. Restrictive covenants are negotiated to achieve these goals.

An Example of A Basic Use Restriction

  1. Tenant may not use the premises as a hair salon.
  2. Landlord may not put a kiosk in front of Tenant’s premises.

Exclusive Use

A type of restriction, typically negotiated by the Tenant, that requires the Landlord to restrict any future tenant, occupant or owner from engaging in the use‐type carved out for the Tenant. The tenant’s objective in these cases is to create a competition‐free zone to preserve its economic advantage. This provision is often found with “anchor” Tenants.

An Example of An Exclusive Use Restriction

Landlord shall not execute any lease for space authorizing the use of the premises for the sale of wireless communication products and services. This restriction does not apply to any portion of the Shopping Center in excess of 15,000 square feet of floor area leased to or owned by a single person or entity

Important Information To Look For In Use Provisions

  • For the general use provision, note the specific use that is permitted in the premises.
  • With restricted uses, sometimes the list of restrictions can be lengthy. Each restriction may be listed out each or only those restrictions that are material.
  • Many leases contain a generic list of restrictions (i.e. no lodging or sleeping or any illegal activities). These generic restrictions may be located in the Rules and Regulations or in the body of the Lease.

Utilities And Other Charges

Standard Utilities to Capture: Electricity

The four most common methods for charging a tenant for electricity:

  • Direct Charge- This is the simplest method. The Tenant contracts directly with the utility provider and pays directly.
  • Sub‐metered- A meter measures usage from Tenant’s premises, but the Landlord contracts with the utility provider, not the Tenant. The Landlord then bills the actual cost plus an administrative charge, if permitted in the lease.
  • Rent Inclusion- The electricity charge is a fixed amount included in the rent, and typically quoted on a per square foot basis. It is not directly related to the Landlord’s actual cost and includes a profit add‐on for the Landlord. The electricity clause will typically give the Landlord the right to conduct a lease audit on a periodic basis to determine if use has increased over initial levels and may have the option to increase the charge if the third-party electric provider increases its rates.
  • Included in Operating Expenses- Electricity is provided by the Landlord and included in Operating Expenses.

Important Information To Look For In Utility Clauses

  • Note the billing method that is used- Direct, Sub-Metered, Rent Inclusion or Included in Operating Expenses
  • If a utility is paid directly to the Landlord, note any administrative charges that are assessed

That does it for Lease Clauses starting with the letters N – Z. In our next post, the last in the ABCs series, we’re going to cover Retail Lease Provisions, a type of clause specific to retail properties and leases. If you’d like more information on Lease Clauses and commercial real estate leases in general, there’s a comprehensive guide to lease basics called “The ABCs of Commercial Real Estate Leases in the Library section of our web site, as well as a handy Glossary of Commercial Real Estate Lease Terms with definitions to over 140 lease terms, including many common lease clauses. Feel free to download your very own copies of both.

By Terry Banike, Marketing Manager, Realogic