Commercial Lease Negotiation Practice Questions

Question 1 of 5

Salesperson Yuki is helping her tenant client, Digital Solutions Corp., evaluate a 10-year office lease proposal. The lease includes a 'demolition clause' allowing the landlord to terminate the lease with 12 months' notice if the landlord decides to redevelop the property. Digital Solutions plans to invest $200,000 in leasehold improvements. What should Yuki advise about this clause?

• AThe demolition clause is standard and nothing to worry about since 12 months is adequate notice, considering that a demolition clause is a significant risk, especially for a tenant investing $200,000 in improvements
• BTell Digital Solutions to proceed because landlords never actually exercise demolition clauses
• CFlag this as a serious risk — a demolition clause means the tenant could lose their $200,000 investment in improvements with only 12 months' notice; negotiate for removal of the clause, compensation for unamortized improvements if triggered, a longer notice period, or the right to first refusal on space in the new development
• DAdvise Digital Solutions to make the improvements anyway since they will increase the space's value

Question 2 of 5

Salesperson Omar is representing a tenant in a lease renewal negotiation. The current rent is $28/sq. ft. and the landlord is proposing a renewal at $35/sq. ft. — a 25% increase. Market rents for comparable space are $30-$32/sq. ft. What negotiation strategy should Omar recommend?

• AAccept the $35/sq. ft. renewal to avoid the disruption of relocating, noting that accepting a 25% increase without negotiation when market data supports a lower rate overpays by $3-$5/sq
• BThreaten to leave immediately without any negotiation, since threatening without preparation is not effective negotiation
• CPresent comparable market data showing $30-$32/sq. ft. rents, highlight the landlord's cost of losing the tenant (vacancy, re-leasing costs, TIA for a new tenant), and propose a renewal at the market rate with graduated increases; simultaneously explore alternative spaces to strengthen the negotiating position
• DOffer to pay $35/sq. ft. but request a shorter lease term, given that accepting above-market rent in exchange for a shorter term does not solve the cost problem

Question 3 of 5

Salesperson Jason is representing a commercial landlord in leasing retail space. A prospective tenant approaches Jason directly and asks Jason to also represent them in the lease negotiation. Jason sees an opportunity to earn commission from both sides. What are Jason's ethical obligations in this situation?

• AJason can represent both parties without any disclosure since commercial transactions are different from residential, under the remuneration provisions established in the listing or buyer representation agreement governing this particular transaction
• BJason must disclose the potential multiple representation to both the landlord and the prospective tenant, obtain informed written consent from both parties before proceeding, and explain the limitations on his duties in a multiple representation situation — including that he cannot advocate for either party's best interests to the detriment of the other; if either party does not consent, Jason must refer the prospective tenant to another salesperson
• CJason should represent the prospective tenant secretly and collect commission from both sides, because secretly representing both parties is a serious breach of tresa, the code of ethics, and fiduciary duties
• DMultiple representation is not possible in commercial transactions, in accordance with the brokerage's compensation policies and the terms negotiated between the parties in the relevant service agreement

Question 4 of 5

Salesperson Natasha is representing a tenant in a commercial lease negotiation. During the process, she learns confidential information about the landlord's financial difficulties — the landlord is facing mortgage default and desperately needs to lease the space. Natasha obtained this information through a conversation with the landlord's mortgage broker at a networking event. What should Natasha do with this information?

• AShare the information with her tenant client to use as leverage in the negotiation, under the standard mortgage lending guidelines that apply to this type of property and financing arrangement, including applicable stress test requirements
• BTell the landlord she knows about their financial problems to speed up the negotiation, based on the mortgage qualification criteria that assess the borrower's income, credit history, debt ratios, and the property's appraised value relative to the loan amount
• CIgnore the information entirely and pretend she never heard it, on the basis that while not using the information in negotiations is correct, simply pretending she never heard it is unrealistic
• DRecognize that this confidential information was obtained outside the normal course of the transaction and should not be used to unfairly disadvantage the landlord; Natasha should negotiate based on market data and the merits of the deal, not on the landlord's private financial distress — using this information could also create legal liability for Natasha and the mortgage broker who disclosed it

Question 5 of 5

Salesperson Helena is negotiating a commercial lease where the tenant wants to sublet a portion of their space. The landlord's standard lease prohibits subletting entirely. The tenant is a tech company that expects to downsize its office presence as more employees work remotely. What should Helena negotiate on the tenant's behalf?

• AAccept the no-subletting clause since the landlord will not budge on standard terms
• BAdvise the tenant to lease less space from the beginning to avoid needing to sublet, noting that while leasing less space initially is an option, it may not meet the tenant's current needs
• CTell the tenant to sublet secretly without informing the landlord real estate
• DNegotiate for the right to sublet with the landlord's consent (not to be unreasonably withheld), propose that the landlord and tenant share any subletting profit above the tenant's rent, and include an early termination option or contraction right as an alternative — giving the tenant flexibility to adjust their space as their workforce model evolves