USA – NEW JERSEY Law and Practice Contributed by: David Freylikhman, Cory Mitchell Gray, David Jensen and Jody Saltzman, Greenberg Traurig LLP
are often those incurred by the landlord above a set base year) and utilities. Typically, gross leases are seen in shopping centres, office buildings and other properties where there are multiple tenants in a single building. Conversely, with a net lease, the tenant pays a base rent payment to the landlord and separately con - tracts for and/or pays other costs and expenses of the property directly to the service provider or other proper payee. In a triple-net lease, for instance, the tenant would pay a fixed rent to the landlord monthly and separately pay all costs and expenses of the real property such as real estate taxes, insurance, main - tenance and utilities. Modified net leases may place certain burdens on the landlord to maintain the roof and structure regard - less of whether a tenant leases the entire property. A modified net lease may still allow the landlord to pass through limited operating expenses for the roof and structure (especially with respect to repair and replacement) but often limits the pass-through of capi - tal expenditures with respect to replacements. Ground Leases Ground leases are another type of lease in New Jer - sey. Typically, the landlord leases only the land to the tenant for a term of 20 or more years and maintains a reversionary interest where, upon expiry of the lease, the land and all improvements (whether installed by the tenant or the landlord) will revert to and be owned by the landlord at the expiry of the term. During the term of the ground lease, the tenant will be respon - sible for constructing improvements and maintaining the property. 6.3 Regulation of Rents or Lease Terms New Jersey does not regulate commercial rents. 6.4 Typical Terms of a Lease Leases typically range from five years to 15 years and will often afford the tenant at least one option to renew. The terms vary based on each deal – however, the rent during the renewal term is often based on:
• a fixed percentage increase over the rent previ - ously in effect; • the then-fair market value of the premises; or • consumer price index adjustments. In addition, it may be the greater of one of the fore - going determinations (ie, the greater of the fixed rent increases and fair market value). Ground leases have much longer terms, typically 25 years or more, and landlords and tenants generally file a Memorandum of Lease on the public records. For space leases, the tenant has all repair and main - tenance obligations within the premises; the landlord is generally responsible for maintaining the structural components of the building, the roof, common areas and the building systems (unless repairs are a result of the tenant’s careless acts or omissions). Typi - cally, leases provide that, if the tenant fails to make its required repairs in a timely manner and following notice and opportunity to cure, the landlord has the right to make such repairs and then charge back the incurred costs to the tenant (often with interest). In a ground lease, it is common for the tenant to be solely responsible for all maintenance, repairs and replace - ments. Rent is typically paid monthly, although ground lease payments may also be made quarterly or annually. 6.5 Rent Variation Typically, base rent will increase at certain trigger points that are negotiated as part of the economics of the lease deal (such increase could be every three years, five years or another interval). The amount of the increase varies but is usually a predetermined percentage. Additional rent escalation charges are usually computed annually, with estimated payments made throughout the year until actual expenses are known and reconciled. A tenant and landlord may negotiate a cap on controllable expense increases (whether cumulative and compounded on an annual basis, or non-cumulative). In a retail context, the tenant will often be required to pay the landlord a “percentage rent” on the tenant’s gross sales receipts above a certain gross sales figure (which is generally determined by dividing the fixed
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