Commercial Investment Real Estate September/October 2018 | Page 21

Some rent clauses discount To address concerns expressed by the accelerated rent the court in Van Duzer, some rent buildings lease to fitness cen- clauses discount the accelerated rent ters or day care facilities — has to present value at to present value at some stipulated rate prompted some landlords to explore some stipulated — often 4 percent or a specified spread new forms of liquidated damage/accel- over the prime rate. While this does not eration provisions associated with their rate. eliminate the double dip, it does avoid the obvi- upfront build-out costs for converting this space. ous windfall that would result from collecting an undiscounted sum. Nevertheless, even this variant is likely unacceptable to many tenants. Favorable Options A more reasonable — and more enforceable — version of rent acceleration bears a direct relationship to the actual damages suffered by a landlord in the event of a tenant’s default. This type of liquidated damage provision essentially eliminates the double dip by deducting the market rental value of the premises recovered by the landlord, while also reducing the accelerated damages to the then-present value. This formula also denies a windfall recovery by the landlord if the market rental value of the space is equal to, or higher than, the rent that was payable by the tenant under the lease. Today’s competitive leasing environment — where retail centers need to lease space to walk-in medical practices, and office Some landlords have sought to recover the unamortized cost of the landlord’s work, broker commissions, and free rent in a lump sum as liquidated damages, in addition to accelerated rent for the balance of the term. This, of course, would likely be ruled as the ultimate double dip because upfront costs already are built into the rent itself. It is arguable, however, that recovery of the unamor- tized amount of these upfront costs without acceleration of the rent would avoid the double dip while being more reflective of a landlord’s actual damages — especially where the unique nature of the tenant improvements renders them unusable for subsequent re-letting. Peter Marullo, Esq., is a partner at Ruskin Moscou Faltischek in Uniondale, N.Y., and is co-chair of the Commercial Lending Services Department and a member of the Real Estate Depart- ment. Contact him at [email protected]. Life with The Pin CCIM Institute provides its members with the most sophisticated knowledge, technology, and operational platform to power their business. CCIM Membership Benefits: Lifelong Learning STDB Free and discounted courses covering crowdfunding, big data, and more. The industry’s best digital toolkit for market analysis. FindaCCIM.com and CCIM Connect CIRE Magazine Subscription An exclusive global network for business and industry intelligence. The award-winning publication that covers market trends and innovations. Affinity Provider Program DealShare Exclusive discounts on travel, tech tools, printing, and more. A database of listings not found anywhere else. Experience life with the pin. Visit www.ccim.com/benefits CCIM.COM September | October 2018 19