Commercial Investment Real Estate January/February 2017 | Page 21

If that occurs, the landlord’s counsel should be mindful to provide provisions in the lease for recapturing the landlord’s cash outlays at lease inception, such as tenant allowances, incentives, and brokerage commissions. Tenants will try to limit the reimbursement to the landlord to the then unamortized amount of these outlays. This would be done by dividing the difference between an asset’s cost and its expected salvage value by the number of years it is expected to be used during the initial term of the lease. Tenants often have similar rights when it comes to violations of the tenant exclusives negotiated in the leases. However, the argument for the landlord’s ability to recapture the cash in those cases is not as strong. Recapturing Cash In the case of a co-tenancy failure, the landlord is not fully in control of the occupancy levels at the shopping center. Bank- ruptcies, tenant closures, and recessions are all circumstances outside of the landlord’s control. In the case of violations of the tenant exclusive, however, the tenant’s argument is that this is a circumstance within the landlord’s control. If the landlord fails to meet its obligations, the tenant should receive compensation. The landlord’s counsel should maintain that the provision should allow recapture in the case of a rogue tenant. That is a tenant that is operating contrary to the tenant exclusive and con- trary to the provisions of its own lease. However, the tenant could still argue that it is still within the landlord’s control to pursue the rogue tenant, including resorting to litigation if necessary. In the case of landlord’s remedies for a tenant default, the argu- ment for recapturing the cash becomes more difficult. If the rent is accelerated or collected each month for the remainder of the lease term, the tenant’s position is that the cash outlays are built into the fixed rent at lease inception. If the landlord is being paid its rent, it is recapturing the cash. It behooves landlord’s counsel to carefully review the lease dur- ing its negotiation for tenant termination rights and determine under what circumstances the landlord should be compensated for its cash outlays. Jerry Siegelman is a partner at Ruskin Moscou Faltischek in Uniondale, N.Y., which is a major provider of legal services that include corporate and securities, financial services, commercial litigation, intellectual property, and real estate. Clients include large and mid-sized corporations, privately held businesses, institutions, and individuals. Contact him at [email protected]. EB-5 Regional Economic Development Advocacy Conference ApRIL 26-28 2017 Invest in the USA (IIUSA) cordially invites you to join us in our nation’s capital from April 26-28, 2017 for the 10th Annual EB-5 Regional Economic Development Advocacy Conference. IIUSA is proud to host this conference at the vibrant Marriott Marquis, completed in May of 2014 with the help of EB-5 investment. The largest hotel in Washington, D.C., the Marquis will be the setting for the industry’s cornerstone event combining the right balance of grassroots advocacy, advanced education, and business development opportunities. FOR YOU. FOR AMERICA. CCIM.COM For more information, visit iiusa.org/dc2017 January | February 2017 19