Welcome to Part 8 in our series on commercial real estate lease fundamentals,“The ABCs of Commercial Real Estate Leases”. With this post, we move on to the topic of Lease Clauses, another core component of commercial real estate leases. There are dozens of standard Lease Clauses, addressing everything from alterations to leased space to how utilities are billed. In this post, we cover the common Lease Clauses that start with the letters A-C.

Alteration/Repair Obligations Of Landlord and Tenant

Defines which party must physically perform corrections/repairs to the Building and all associated systems. Provides any limitations upon the parties as to how any alterations to the Building and all associated systems may be performed, and provides the associated financial responsibilities of the parties for any repairs/alterations.

Important Information to Look For

  • Supervision fee (usually based on a % of the cost of the work) if any, paid by the Tenant to the Landlord if the Landlord performs repairs/alterations
  • Briefly capture what comprises the building “systems” and how responsibility is allocated between Tenant and Landlord
  • Whether either party is obligated to materially alter the Building.

Antenna/Roof Rights

A tenant may negotiate for the right to install an antenna or other communication equipment on the rooftop of the premises or building in which the premises are located. In this situation, a landlord will typically charge an additional fee or rent for use of the rooftop space. Because the tenant typically is required to pay for the use of rooftop space, it is important to carefully review any such provision.

Key Information to Look For

  • Description of allowed equipment
  • Requirement to screen equipment
  • Fees (if any)


Assignments and Subleases are very similar in nature, but have important distinctions.


An assignment is the transfer of one’s property, interest or rights to another. The party making the transfer is the “Assignor” and the party to whom the transfer has been made is the “Assignee”. In a lease assignment, the Assignor transfers some or all of their rights to use the leased Premises to the Assignee, and the Assignee usually becomes the “Tenant” for the unexpired remainder of the lease term. In most assignments, the Assignee acquires the same rights and privileges, and assumes the same obligations, that belonged to the Assignor. In addition, the Assignor typically remains liable for any lease obligations that are not fulfilled by the Assignee after the lease has been assigned, unless relieved of such obligations by the landlord. Assignments usually require the landlord’s consent.

Example of An Assignment Clause

ABC Tenant has been purchased by XYZ Company. The purchase agreement requires ABC to assign all of their leases to XYZ. In accordance with the terms of ABC Tenant’s lease at Realogic Tower, ABC and XYZ enter into an Assignment and Assumption Agreement, whereby ABC agrees to assign their lease to XYZ, and XYZ assumes all of ABC’s lease obligations for the unexpired term of the lease.

A lease executed by a tenant (the ‘Sub‐Lessor’) to another lessee (the ‘Sub‐Lessee’) for a term equal to or shorter than that held by the tenant under its original lease with the landlord. In most subleases, the original tenant remains primarily liable to the landlord for the performance of lease obligations, including the payment of Base Rent and Additional Rent, and the Sub‐Lessee is liable for payment of sublease rent to the Sub‐Lessor.


Subleases usually require landlord consent. Sublease Profits are consideration received by a Sub‐Lessor from a Sub‐Lessee under a Sublease, that is greater than the consideration payable by the Sub‐Lessor (i.e., tenant) to the landlord under the original lease. In many subleases, the Sub‐Lessor is required to share some or all of the Sublease Profits received with the original landlord.

For example: ABC Tenant has subleased 2,500 sq. ft. to XYZ Company. Pursuant to the sublease, XYZ is required to make sublease rental payments of $15.00/sq. ft./year. Pursuant to the original lease, ABC is making rent payments to the Landlord equal to $13.00/sq. ft. /year. The Sublease Profit recognized by ABC is $5,000/year [($15.00 ‐ $13.00) x 2,500 sq. ft.]. If ABC’s lease with the Landlord so requires, ABC might be required to share some or all of this Sublease Profit with the Landlord.

Example of A Sublease Clause

ABC Tenant is leasing 10,000 sq. ft. in Realogic 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 sublease the 2,500 sq. ft. to XYZ Company. The Landlord grants its consent to the sublease, which provides for sublease rent in the amount of $15.00/sq. ft. /year. XYZ Company (the Sub‐Lessee) makes the required sublease payments to ABC Tenant (the Sub‐Lessor), and ABC Tenant continues to make its required rental payment to Landlord pursuant to the original lease.

Important Information To Look For

  • Is the Landlord’s consent required?
  • Does the Landlord have recapture rights? (i.e., the right to terminate the entire lease or just the portion being sublet)
  • Does the Landlord share sublease profits? Note the rate of interest and frequency of payment
  • If the Landlord exercises its recapture rights, can the Tenant rescind (take back) its request to the Landlord?
  • Is there a situation whereby the Tenant can assign/sublease without the Landlord’s consent?
  • Provide specific conditions that must be met for the Tenant to assign/sublease without the Landlord’s consent.
  • Provide any limitations on the number of subleases the Tenant can make

Audit Rights

A right granted to either the Landlord or Tenant to inspect the respective party’s accounting records and books, typically related to the calculation of Operating Expenses or Gross Sales. This is done to ensure proper and accurate accounting methods.

Example of An Audit Rights Clause

If the Tenant disputes the amount of Operating Expenses due, the Tenant shall have the right to inspect the Landlord’s accounting records relating to Operating Expenses during normal business hours at any time within 90 days following the furnishing by the Landlord of the Landlord’s Reconciliation, provided Tenant gives Landlord notice no later than 60 days after Tenant’s receipt of Landlord’s Reconciliation.

Important Information to Look For

  • Does Tenant have the right to audit Landlord’s annual statement of recoverable expenses (both tax and operating expenses)?
  • Timeframe in which the party with the right must give notice
  • Timeframe in which the audit must be commenced/completed
  • Who covers the cost of the audit? 

Casualty (Damage & Destruction)

The Casualty (or Damage & Destruction) clause of a lease dictates what is to occur between the parties in the event the Building, Project or Premises is damaged due to a fire or other casualty (i.e., a natural disaster). It will specify whether or not one or both parties may terminate the lease, if there is a requirement on the part of the owner/landlord to rebuild and within what timeframe the rebuild is to occur. It is important to note that remedies in the event of damage or destruction of property are usually based on the percentage of the property damaged and the ability of the tenant to continue (or not continue) operating in light of such an event.

Important Information to Look For

  • Does either party have the right to terminate the lease in the event of Damage or Destruction? If so, whom and under what circumstances?
  • Is an abatement of Rent applicable in any event related to Damage or Destruction?
  • Is the Landlord required to rebuild? Under what circumstances and within what timeframe?


Condemnation (or Eminent Domain) is the right of a governmental entity to “take” a property for public use. An example of this would be the razing of a group of homes to make way for a new highway. A lease will provide instruction to both the landlord and tenant as to their rights and obligations in the event of a taking of the property or premises. In virtually every case of condemnation, the owner of the property is compensated by the condemning agency, usually based upon the value of the property being taken. This compensation is often referred to in the lease as an Award and the lease will guide the parties as to the application of the Award.

Important Information to Look For

  • Does either party have the right to terminate the lease in the event of Condemnation? If so, whom and under what circumstances?
  • Which party is entitled to the Award? Are they entitled in full or in some other proportion?
  • If a specific event is mentioned (i.e., “parties acknowledge that this Project may be taken in order to complete the expansion of City Airport”) it is very important to note this

That covers lease clauses that start with the letters A–C. Next up, common Lease Clauses that start with the letters D-H. In case you missed it, in previous posts in our “The ABCs of Commercial Real Estate Leases” series, we covered other fundamental elements of commercial real estate leases, including Rent and Recoverable Expenses, Operating Expense Inclusions and Exclusions and ROFO/ROFR  and Termination Options.

If you’re looking to learn more about leases, or would like information on a specific component of leases, we think you’ll find our previous posts to be helpful and informative. In addition, there are several excellent resources on commercial real estate leases in our Library, including our Glossary of Commercial Real Estate Lease Terms, that has definitions for over 140 terms.

By Terry Banike, Marketing Manager, Realogic