Wednesday, October 24, 2018 3:30 – 4:45 PM

Workshop 3

Is There Too Much Space Between Us? Challenges and Opportunities in Tenant Downsizing

Presented to

2018 U.S. Shopping Center Law Conference JW Marriott Orlando Grande Lakes

Orlando, FL October 24-27, 2018

by:

Matthew J. Davis Associate

The Hirschel Group, P.C. 5225 Wisconsin Avenue, NW

Washington, DC 20015 mdavis@THG-law.com

Michael Hunter Freese Senior Associate General Counsel, Legal

Development Simon

225 West Washington Street Indianapolis, IN 46204 mfreese@simon.com

I. Introduction Existing tenants or anchor department stores may determine that they are operating in too much space relative to a current prototype (i.e. maybe less space is needed because tenant doesn’t need to carry as much inventory as it previously did because other channels for distribution are available) or may seek to reduce occupancy costs by downsizing their space, or as may be the case with anchors (e.g., department stores, big boxes or other retailers that are not in-line small shops) who own their buildings or have long-term leases, they may seek to lease or sublease excess space to generate revenue. In such circumstances, Landlords and Tenants must consider and work through a number of issues and problems. This discussion will cover downsizing opportunity and challenges for tenants and landlords in traditional department stores, junior anchors and in-line stores. References to “Tenant” in the discussion below and the concepts and considerations will typically be applicable to anchors.

II. Tenant or Anchor downsizing strategies for underperforming stores Sublease

Does tenant have the right to sublease the space? The underlying documentation (i.e. the lease itself and any related amendments/agreements) should be reviewed in detail to determine whether or not tenant has the right to sublease the space.

What are landlord’s consent rights over a sublease?

Lease silent? In our experience, it is very rare that a lease doesn’t include some varying degree of Landlord consent over a sublease (i.e. sole and absolute discretion, or not to be unreasonably withheld). However, if the document you are reviewing does fall in the rarified air category of not specifically detailing the consent standards for a sublease then applicable state law may or not be on your side. Some states specify that Landlord’s consent can be withheld in Landlord’s sole discretion unless “reasonableness” is expressly required while other states imply that consent cannot be unreasonably withheld. No consent rights? Ideally for tenant, tenant would be able to sublease all or any portion of the space without landlord consent; however, in our experience, it is very unlikely that this would be the case. It is more likely that tenant would have the right to sublease the space without landlord’s consent in certain limited circumstances.

For example, if a landlord wants a new tenant to take over all of a big box space that is now vacant (i.e. Circuit City, HH Gregg, Sears, Toys R’ Us, etc.) that is too large for the new tenants current prototype, but landlord is unwilling to demise the premises, the new tenant would be in a position to negotiate liberal sublease rights in exchange for taking a space that is too large for its current prototype. Sample language for this scenario follows: “Notwithstanding anything to the contrary contained herein, Tenant may sublease that portion of the Demised Premises in excess of _______ square feet (or any portion thereof) (“Surplus Demised Premises”), without the prior consent of Landlord; provided that such sublease is subject to all other terms and conditions of this Lease.”

Additionally, it is common for most sophisticated tenants to negotiate the right to sublease the space without landlord consent for certain intracompany transfers and external transfers that satisfy very specific requirements. Intracompany transfers may not necessarily address the need to downsize a space; however, sample language for both scenarios follows: “Notwithstanding anything to the contrary contained herein, Tenant shall have the right, without Landlord’s consent, to assign this Lease or sublet all or any portion of the Premises to, (a) a parent, subsidiary, or other affiliate of Tenant, (b) an entity with which Tenant may merge or consolidate, or (c) an entity acquiring a substantial portion of Tenant’s assets; provided such assignment or sublease is subject to all the other terms and conditions of this Lease.”

Note, in both of the scenarios above, it may be critical for tenant to incorporate a provision into the lease agreement obligating the landlord to recognize the sublease. Sample language for this provision follows: “If Tenant subleases all or any portion of the Demised Premises, then Landlord shall, upon Tenant’s request, execute and deliver a recognition agreement among subtenant, Landlord, and Tenant wherein Landlord agrees to recognize the rights of such subtenant.”

Reasonable standards. If the lease does specify consent rights, then in most situations where landlord and tenant have relatively similar bargaining power, it is common to obligate landlord to not unreasonably withhold its consent to a request for a sublease. In this situation, we typically find that it is prudent to spell out the specific factors that landlord may take into consideration when determining whether or not it may withhold its consent.

Sample language for this provisions follows: “Without limiting the generality of this Article _____, it will be reasonable for Landlord to refuse consent to any proposed assignment or sublease (i.e. a “Transfer”) if, at the time of either Tenant’s notice of the proposed Transfer or the proposed commencement date thereof (i) there shall exist an Event of Default by Tenant or matter which will become an Event of Default of Tenant with passage of time or the giving of notice, or both, unless cured; (ii) the proposed Transferee is an entity (aa) with which Landlord is already in negotiation as evidenced by the issuance of a written proposal; (bb) which is already an occupant of the Shopping Center; (cc) which is incompatible with the character of occupancy of the Shopping Center; or (dd) which would subject the Premises to a use which would (1) violate any exclusive rights or restrictions contained in the lease of another tenant of the Shopping Center, or violate Exhibit _____ of this Lease, or conflict with the primary use of another tenant, (2) require any addition to (including improvements thereon) or modification of the Premises, or all or any portion of the Shopping Center, or any additional action by Landlord, in order to comply with building code or other governmental requirements, or (3) increase the governmental parking requirements for the Premises or the Shopping Center; (iii) the tangible net worth of the proposed transferee, immediately prior to and following such Transfer, is less than the aggregate tangible net worth of Tenant and Guarantors, if any, on the Effective Date of this Lease or on the date of Transfer, whichever is greater; (iv) the proposed transferee has less than five (5) years’ experience with respect to owning and operating the same type of business as the Permitted Use of the Premises; (v) the nature of the proposed Transferee’s proposed or likely use of the Premises would involve any increased risk of the use, release or mishandling of any Hazardous Materials (as defined in this Lease); (vi) the business reputation or character of the proposed transferee or the business reputation or character of any of its affiliates is not reasonably acceptable to Landlord; or (vii) the proposed transferee will not qualify as a replacement tenant under any co-tenancy or other similar provision in any other lease or agreement in or affecting the Landlord or the Shopping Center.”

Drafter’s tips – (1) When drafting a provision that includes a list of examples it may be impossible/impractical to address every possible example that your client may want to take into consideration. Accordingly, you may want to include the following language to protect your client: “The foregoing are only examples of reasons for which Landlord may withhold its consent and shall not be deemed exclusive of any other permitted reason for reasonably withholding consent, whether similar or dissimilar to the foregoing examples.” You would include this language in the provision above regarding reasons to withhold consent for a proposed transfer if you represented the landlord in the transaction. An example of when you may want to include this language if you represent the tenant in a lease transaction is if you have listed examples of other tenants that are deemed to violate your client’s exclusive use provision. (2) A lot of the standards commonly used by landlords may be subjective (i.e. “the business reputation or character of the proposed transferee or the business reputation or character of any of its affiliates is not reasonably acceptable to Landlord”). If you are representing a tenant, it is important to try to limit the standards to clear and objective standards.

Do the consent standards differ depending on:

The amount of space tenant intends on subleasing? Some landlords may be OK without consent rights over a proposed sublease of the entire tenant space; however, landlord may want consent rights over the proposed sublease if it is going to be for less than the entire tenant space. A sublease for less than the entire tenant space creates some additional concerns for a landlord.

The original tenant space will have to be demised. If the two separate spaces ever become vacant, will landlord be able to relet the separate spaces without performing additional work? Drafter’s tip: You may be able to address this concern by specifying some of the following for a sublease of less than an entire tenant space: (1) a minimum square footage for the space, (2) a minimum frontage for the space, and (3) a minimum depth of the space. Additionally, it may be a fair compromise to give landlord reasonable approval rights over the final LOD of the proposed sublet space.

The demising of the space may create additional work that landlord may want to have control/approval rights over. For example, will utilities need to be segregated? Drafter’s tip: To address this concern, you may want to include a plan submittal, review, and approval process for any sublease of less than the entire tenant space. The proposed use of the space by the proposed subtenant(s)?

Prohibition against subleasing in violation of then existing exclusives or restrictions on use. As a landlord attorney, it is critical that any proposed assignment/subleases must not violate any then existing exclusives/restrictions on use that are in place. Drafter’s tips: (1) As a tenant it is crucial to have the right to request this information at the beginning of the assignment/sublet process. Sample language addressing tenant’s right to request this information follows: “Within fifteen (15) days after request by Tenant, Landlord shall provide Tenant with a listing

of all exclusives and restrictions on use then currently in effect that bind the Shopping Center. If Landlord fails to respond within the required time, Tenant shall have the right to send to Landlord a second notice again requesting a list of all exclusives and restrictions on use in effect. If Landlord fails to provide the list within fifteen (15) days after receipt of the second notice, it shall be deemed an acknowledgment by Landlord that other than those exclusives and restrictions on use in Exhibit ______ of this Lease, there are no further exclusives or restrictions on use at that time.” Landlords may be hesitant to include the highlighted language; however, without this language a landlord could simply ignore a tenant’s request and never respond to the notice. The reminder notice concept should assuage any concerns landlords have about potentially missing the first notice. (2) Additionally, tenant attorneys may want to argue that their change in use rights shouldn’t be subject to future exclusives/restrictions on use. Why? Because most sophisticated landlords should include exceptions for existing tenants in their future exclusive/restriction on use provisions. If tenant does have the necessary flexibility to sublease the space, is there another provision in the lease that could impose a barrier to the proposed sublease. Drafter’s tip - When negotiating a lease for a tenant client, it is important to consider all factors that may impose an impediment, or act as a restraint, when your client seeks to exercise a sublease right. Some of the provisions in a lease that should be taken into consideration from this perspective follow (while these provisions in and of themselves may not be fatal to a proposed sublease transaction, they certainly represent additional hurdles your tenant client may have to clear in order to complete the transaction):

Restrictions on trade name changes.

It is important to negotiate flexibility on trade name changes up front as part of your client’s lease exit strategies. A sample provision addressing this concern follows: “Tenant may conduct business in the Demised Premises under the trade name “________________” or under such other trade name as shall be used by (a) Tenant in any of its other locations, or (b) any person or entity that succeeds to Tenant's business and/or Tenant's rights under this Lease.”

The above provision is a very tenant friendly provision. For those landlord oriented attorneys in the room, a more palatable sample provision follows (this provision gives tenant the flexibility it may need, while providing landlord with some protection as well): “Tenant may, without Landlord’s consent, change Tenant’s Trade Name, so long as (i) (a) concurrently therewith the trade name of substantially all other similar stores owned, operated or controlled by Tenant and its affiliates shall likewise be changed to the same trade name, or (b) such trade name change is conjunction with a sublease or assignment of this lease that does not require Landlord’s consent, and (ii) such trade name does not conflict with the trade name of any other tenant in the Shopping Center, and (iii) Tenant pays the cost of all necessary signage changes throughout the Shopping Center. Tenant agrees to provide Landlord at least thirty (30) days’ prior written notice of the name change and to submit to Landlord for approval plans and specifications for such sign(s) prior to the installation of the new sign(s).” Drafter’s tip, tenant may not be able to provide the advance notice of a trade name change if its proposed sublessee has obligated the tenant to keep the terms of the transaction confidential for a period of time. In this situation, rather than providing advance notice, tenant would want to negotiate the right to provide notice as promptly as possible giving weight to any confidentiality considerations in place.

Sharing in sublease profits. We all know landlords don’t want tenants to make money off of the landlord’s real estate (that might be the first point you learn in this industry). We have yet to come across a landlord form lease that does not obligate tenant to share with their respective landlords in any sublease profits (some landlord form leases even obligate tenants to pay landlord 100% of any sublease profits [if your form lease obligates tenant to pay 100% of any sublease profits to landlord, then isn’t a realistic outcome of this provision that your tenant won’t sublease the space for any profit at all?]). For those landlords that are really inflexible on this provision, would your client be willing to give tenant its pro rata share of any profit made by landlord in the sale of the shopping center? A sample provision addressing sublease profits that should be palatable for both landlord representatives and tenant representatives follows: “If Tenant sublets or assigns this Lease and at any time receives periodic rent or other consideration which exceeds that which Tenant would at that time be obligated to pay Landlord, Tenant shall pay to Landlord fifty percent (50%) of the net increase in Rent as the Rent is received by Tenant and fifty percent (50%) of any other consideration received by Tenant from the transferee. The net increase in Rent shall be determined by first deducting the reasonable and actual costs incurred by Tenant in completing the sublease or assignment transaction and any consideration payable to Tenant by the transferee for the sale of Tenant’s fixtures, leasehold improvements, equipment, furniture, furnishings, or other personal property. Any amounts payable by Tenant pursuant to this Section, shall be paid by Tenant to Landlord as and when amounts on account thereof are paid by the transferee to Tenant. Landlord shall have the right at any time, upon reasonable advance

prior notice to Tenant, to audit and inspect Tenant’s books, records, accounts, and federal income tax returns to verify the determination of the amounts payable by Tenant pursuant to this Section.”

Restrictions on changes in use. If the proposed use of the subtenant differs from the permitted use of tenant, then the lease documentation will need to be reviewed to determine whether or not tenant has the flexibility to sublet for a different use. Most landlords will want to “control their real estate” and will do their best to restrict tenants from changing their permitted use. Tenant representatives should push for liberal rights to change their permitted use. A sample tenant friendly provision follows: “Tenant may change the use of the Premises to any other lawful retail use so long as the same does not violate the Exclusive/Prohibited Uses set forth on Exhibit “F” to the extent that the leases of any tenant listed on Exhibit “F” are then still in force and effect.” Drafter’s tip: Sophisticated landlords (and those with bargaining power) may want to consider negotiating recapture rights if tenant proposes a change in use, but if a recapture right is a non-starter for the opposing party, then landlord should incorporate standards that a tenant must satisfy in order to change its use (i.e. the proposed use must not violate any then existing restriction on use and the proposed use must be customarily found in first class shopping centers in the metropolitan area in which the shopping center is located).

Landlord recapture rights. If landlord has the bargaining power to negotiate a recapture right if tenant seeks to assign the lease or sublet the premises, it is important to negotiate protections for your tenant client. Drafter’s tips: (1) If you have negotiated the right to sublease/assign the lease in certain instances without landlord consent, then the landlord should not have the right to recapture the space and terminate the lease in these instances. (2) If the transaction is one that requires landlord consent, then it may be fair for landlord to have the right to recapture the space and terminate the lease. In this instance, it would be a fair compromise for tenant to have the right to void landlord’s recapture/termination if tenant withdraws its request for landlord’s consent.

Going Dark/Operating Covenants

What are the operating standards for Tenant?

Fully fixtured, stocked, and staffed?

Tied to the existing prototype for tenant?

Does tenant have to operate in the entire space, or may it close a portion of the space without violating its operating covenant?

Termination rights

If tenant can’t sublease the space or go dark in a portion of the space, are there any other provisions of the lease that tenant could use to its advantage (i.e. does tenant have a termination right under the Lease that it could threaten to exercise? From landlord’s perspective, smaller and occupied space may be preferable to dark space)? Landlord/Developer Concerns Sublease

Does Tenant have a right to sublease or assign their interests? Can that be for less than the entire premises? What use restrictions or other limitations may apply? Is Landlord consent required—is it a sole discretion or may not be unreasonably withheld standard?

Does landlord have recapture rights if a sublease or assignment is proposed by Tenant? If landlord can recapture and the right is triggered by tenant’s request, can tenant void the recapture by withdrawing its request? What time frames are applicable? What information must Tenant provide regarding the proposed sublease or assignment?

Parking ratio concerns based on proposed subtenants. The existing tenant mix at the center may be in compliance with parking code; however, if a standard retail user is going to sublease to a restaurant user, then landlord may need to determine whether or not it will be in compliance with applicable parking code taking into consideration the new tenant mix at the center.

Signage concerns. Landlord should review the existing documentation in effect at the center to determine the impact adding a subtenant with new signage will have. There may be restrictions in place that dictate the type/amount of signage the new subtenant can have.

Going Dark/Operating Covenants

If tenant has closed without the right to go dark and in violation of its operating covenant, landlord should consider possible avenues of legal recourse against tenant (including defaulting tenant pursuant to the terms of the lease and possibly obtaining a court order to compel Tenant to comply with its obligations under the lease). Additionally, a detailed review of the lease documentation may reveal that tenant is obligated to pay liquidated damages if tenant fails to operate in accordance with the terms of the lease.

If tenant has the right to go dark and tenant closes:

Landlord should make sure to have access to the space for inspection purposes and to be able to show the space to prospective tenants (hopefully this right was negotiated in the go dark provision in the lease, but if it was not, landlord should try to address this issue)

What on-going obligations does Tenant have on rent, CAM, taxes or other operational obligations such as maintenance and security?

Can landlord recapture after tenant goes dark? Is there a time frame for landlord to decide whether to recapture?

A sample go dark provision addressing some of the above-referenced concerns follows: “At any time after Tenant opens for business to the public in the Demised Premises, Tenant, in its sole and absolute discretion, may elect to cease to operate in the Demised Premises by giving Landlord not less than one hundred eighty (180) days’ prior written notice (“Go Dark Notice”). At any time thereafter, Landlord shall have the option to terminate this Lease and recapture the Demised Premises, upon giving the Tenant thirty (30) days’ prior written notice of its intent to do so. It shall be an Event of Default if Tenant ceases operations without giving such notice or if Tenant closes for business prior to the expiration of the one hundred eighty (180) day period. After Tenant ceases operations at the Demised Premises, Landlord shall have the right to install on the exterior of the Demised Premises a “For Rent” sign and to show the Demised Premises to prospective tenants. Tenant’s obligation to pay Rent or perform any other obligations (including, but not limited to, Tenant’s maintenance and repair obligations) under this Lease shall continue until the effective date of said termination by the Landlord (“Termination Date”). All Rent shall be prorated through the Termination Date and Tenant shall promptly pay any of said sums to Landlord. If Landlord elects to terminate under this Paragraph, Tenant agrees it shall surrender the Demised Premises to Landlord in the same condition that Tenant would have been required to if this Lease had terminated on the original expiration date. On the Termination Date, the parties hereto shall be released from any further liability and obligations under this Lease, excepting any liability or obligations accruing prior to the Termination Date. If this Lease is terminated as provided herein, Tenant shall pay to Landlord an amount equal to the unamortized portion of the Construction Allowance on a straight-line basis over the original Term of this Lease. Tenant shall pay the unamortized portion of the Construction Allowance to Landlord, as Additional Rent, within thirty (30) days of receipt of Landlord’s termination notice. The provisions of this paragraph shall survive the termination of this Lease and the surrender of the Demised Premises.” Drafter’s tip: Tenants may be hesitant to deliver advance notice of their intent to cease operating as this may cause issues for certain tenants (i.e. publicly traded tenants), or tenants may not want their employees to be made aware that the store is closing for business. If advance notice of cessation of business is a critical point for landlord, then tenants should negotiate a strict confidentiality provision for landlord to adhere to when it receives the notice.

What should landlord ask in return for agreeing to the proposed downsizing/rent restructure?

Tenant has to extend the term or pick up an existing option to extend the term

Drafter’s tips: (1) If the parties agree to extend the term in exchange for the rent restructure, then you need to determine at what point you are extending the term from. I.E. is the term being extended from the original expiration, or is the term being extended from the date of the rent reduction? (2) Additionally, if the term is going to be extended from the date of the rent reduction, then it is critical to consider the possible impact this may have on other provisions of the lease (i.e. percentage rent if there is a negotiated breakpoint, CAM caps, etc.).

Landlord may ask tenant to agree to a new/stronger operating covenant

Drafter’s tips: (1) Often times we find that lease contain generic language obligating a tenant to continuously operate in the space. What satisfied the obligation to continuously operate? It is prudent to include objective

standards. Without objective standards it may be difficult to determine whether or not a tenant has complied with the obligation to operate the store. For example, you may want to specify a minimum number of hours that a tenant must operate for each week to satisfy this requirement (i.e. 50 hours per week, or at least 8 hours per day Monday-Friday). Alternatively, you could obligate tenant to operate during the hours of 10:00 a.m. through 9:00 p.m. Monday through Saturday and from Noon until 6:00 p.m. on Sunday. (2) The nature of the proposed business should be taken into consideration when establishing the minimum number of hours that a tenant must operate for in order to satisfy the obligation to operate. For example, a restaurant that serves only breakfast and lunch shouldn’t be obligated to operate during the same time periods that a dinner only restaurant is obligated to operate. Additionally, standard retail service offices (i.e. banks, dentist offices, optometry offices, etc.) are not going to want to agree to the same operating hours that a landlord would require a traditional retailer to operate for. (3) Lastly, if you represent a tenant, it is critical to negotiate certain permitted closures for your client so that they may close for business without being in default of its obligation to operate (i.e. periods of closure for repairs, remodeling, inventory control, etc.). An especially relevant permitted closure that should be negotiated, is the right to be closed for a certain period of time to effectuate a sublease as the proposed subtenant will most certainly require some down time to renovate, fixture, and stock the space. When you are negotiating permitted closures as a landlord representative, it is critical to obligate tenant to provide advance notice, if possible, and ensure that tenant is obligated to diligently and continuously pursue reopening for business (a more objective standard would be to limit the number of days a tenant may be closed for each permitted closure – i.e. 3 days per lease year for inventory control purposes).

If tenant has various protections under the lease (i.e. exclusive use protections, noxious use protections, or common area/no-build protections), landlord may want to consider asking for carve outs to the applicable protections or waivers for potential future occupants of the center.

For example, it was customary for past noxious use provisions to typically include restrictions prohibiting landlord from leasing to health clubs, movie theaters, grocery stores, and car dealerships. Many of the referenced uses are now very desirable and attractive tenants for landlords to include in their tenant mix at centers, and it is critical for landlords to have flexibility to lease to these types of users in centers. Additionally, from tenant’s perspective parking concerns associated with requiring the type of protections referenced in this bullet point may be mitigated (i.e. old parking ratios may have been too high, availability of public transportation, etc). If rent is restructured

Obligation to re-pay difference between original rent and new rent if there is a default

Confidentiality provision. Landlords will want to ensure that tenants do not have the ability to let other tenants of the center know that landlord was willing to restructure tenants rent. Drafter’s tip: Drafting a confidentiality provision to address this scenario isn’t enough. If tenant violates the confidentiality provision, then rent should revert to the rent that was originally scheduled to become due and payable but for the rent restructure agreement.

Radius restriction. If the underlying lease documentation does not include a radius restriction, then crafty landlords would seek to add a radius restriction that prevents the tenant from opening a competing business within a certain distance of the center. Again, as stated above, if tenant violates the radius restriction, then the rent should revert to the rent that was originally scheduled to become due and payable but for the rent restructure agreement. Drafter’s tip: From tenant’s perspective, maybe the location of the existing business is the problem, and agreeing to a radius restriction does not address the underlying reasons for tenant’s inability to pay the originally scheduled rent due under the lease.

Sales reports/financial statements. Drafter’s tips: Landlord may want to make the rent restructuring automatically revert if tenant’s sales reports/financial statements show a material improvement from the reports/statements existing at the time of the initial restructure. Landlords should obligate the tenant to deliver these reports/statements, and landlord may want to consider obligating the tenant to have a certified public account prepare the reports. Additionally, if possible, landlord should add a right to audit tenant’s records.

Restrictions on lending money, distributions, etc.

Rent reduction null and void if the lease is transferred. The rent reduction should be personal to the named tenant and if the lease is assigned or sublet to an unrelated third party, then the unrelated third party shouldn’t get the benefit of the rent reduction.

If there is a bankruptcy, rent calculated pursuant to the terms that existed prior to the rent reduction

Does landlord have a relocation right under the lease that would warrant exercising to maintain control of tenant’s original premises? Landlord’s counsel should review the lease in detail to determine if this is a possibility. Keep in mind – not all relocation provisions are created equal. For example, some provisions may be very broad and landlord friendly, while others may specify acceptable relocation spaces in advance and obligate landlord to pay for the costs incurred by tenant in relocating or tenant may even be permitted to terminate the lease in lieu of relocating (all of these factors need to be taken into consideration when advising your client of the possibility of relocating tenant to a different space in the center). General space reduction concerns

Co-Tenancy

Do occupants of the center have co-tenancy protections that may be impacted by a space reduction for a particular tenant? GLA components, named tenant concerns, and replacement protection for landlord.

Lender issues

Is lender approval/consent necessary for the space reduction agreement? If landlord’s lender, landlord, and tenant entered into a SNDA when the original lease was executed, landlord’s lender may not be bound by the amendment to the lease reducing the size of the premises. It is important for landlord’s counsel to consider this and review the SNDA, if any, to determine whether or not lender’s consent to the amendment is required. Additionally, landlord’s loan documents may have standards in place regarding rentals/size of spaces, and these standards may force landlord to get lender’s consent for the space reduction regardless of whether or not an SNDA was entered into at the time of lease execution.

Closing/Reopening

Is the existing tenant permitted to close while the work is being performed to accomplish the space reduction? From tenant’s perspective, if there is going to be a material disruption to tenant’s business to accomplish the space reduction, then tenant should push for the right to temporarily close.

Drafter’s tips: If landlord agrees that tenant may close while the space reduction work is being performed, then the document should include an affirmative obligation to reopen within a period of time after the space reduction work is completed (or, substantially completed). If tenant is the party responsible for performing the space reduction work, then landlord may be less willing to agree to permit tenant to close during completion of the space reduction work. To address this concern, you could simply limit tenant’s right to close to a finite period of time.

Construction/Work

What party is responsible for performing the work necessary to demise the space into separate spaces?

If tenant is responsible for performing the work:

Plan submittal obligations (timing of submittal, timing for response to submittal, revise and resubmit obligations, etc.)

General alteration standards (i.e. first-class, diligently pursued, efforts to minimize interference with other tenants of the center, etc.)

Consent rights over the plans

If landlord is responsible for performing the work you may have some of the same issues referenced above (i.e. does tenant want the ability to review landlord’s proposed plans for the work, etc.)

Need to ensure landlord has the ability to access the space and perform the work without interference from tenant

Measurement rights after work has been completed. Each party should want the right to measure the reduced space. Should the square footage based charges in the lease be based upon the actual size of the reduced

space? Possibly. Each party may argue that the burden of creating an appropriately sized reduced space falls on the party responsible for performing the space reduction work (i.e. if tenant is responsible for performing the work and creates a space that is too small, then tenant shouldn’t get the benefit of paying reduced lease charges. Alternatively, if landlord is the party for performing the work and creates a space that is larger than the approved plans called for, then landlord shouldn’t be able to proportionately increase the square footage based lease charges).

Note, all existing lease documentation in place at the center should be reviewed to determine if there are any restrictions in effect that limit the performance of work (i.e. are there blackout periods that prevent landlord/tenant from performing work during the holiday season? Other tenants may have restricted/no-build area protection that limit the rights of landlord/tenant to perform work in certain areas of the shopping center. If the center is part of a mixed use development there may be restrictions in place that limit the hours during which construction may be performed at the center. Etc.). Pylon/Monument signs

If a tenant downsizes and has pylon/monument sign rights that are on a favored nation basis, tenant may lose its pylon/monument sign rights to other larger tenants, and landlord should carefully review existing occupancy agreements at the center to determine the rights of other occupants at the center with respect to the pylon/monument signs.

Tenant may have to relocate its existing storefront signage as part of the demising of its space.

Can tenant reuse the existing sign or is tenant obligated to update its signage

If tenant is obligated to update its signage then the sign plan submittal and review process needs to be addressed

Obligation to install approved signage. Landlords will want tenant to have the affirmative obligation to reinstall the approved signage within a specified period of time. What happens if tenant doesn’t install the signage within the applicable time frame? Landlord may have the ability to default tenant under the lease; however, is this really an ideal position for landlord to take? Drafter’s tip: Rather than defaulting tenant for tenant’s failure to install signage timely, it may be more ideal for landlords to obligate tenants to pay a late charge for a failure to timely install signage. As tenant’s counsel, you should build in notice/cure before agreeing to a late charge and should even consider building in extensions of the deadline to install the signage if the inability to install the signage is due to force majeure or any permitting issues.

Rent and charges

Should be re-calculated based on the revised square footage of the space. May need to address which party bears the risk for demising the space incorrectly. Generally, it would be fair that the party responsible for demising the space bear the risk if the spaces are too large/small because the space was not demised correctly.

Restrictions on Use/Waivers

Are there intervening restrictions on use that could possibly impact tenant because of the amendment to tenant’s lease and reduction in square footage of tenant’s space? For example, if tenant was a major tenant (i.e. occupying more than 20,000 square feet), tenant may have had the benefit of “major tenant” carve outs to exclusives/restrictions on use that were in place at the time tenant originally entered into the lease. If tenant is reducing its square footage, then both parties should review all exclusives/restrictions on use in effect at the center to determine the possible impact the space reduction may have on the same.

If tenant had the benefit of a waiver in order to operate in the center, does the waiver remain in effect if the size of tenant’s space is reduced? Subtenant Concerns Subtenant should consider whether or not the situation warrants requiring an NDA from tenant’s landlord. For example, if a subtenant is subleasing space from a tenant that is experiencing financial trouble and is closing stores, then, presumably, it may be reasonable to expect that the sublandlord won’t be able to discharge its financial obligations under the master lease. In this scenario, it would be paramount for the subtenant to require a recognition agreement from the master landlord as a condition to agreeing to enter into the sublease.

Subtenant should also determine if the center is subject to a mortgage/deed of trust and whether or not the situation warrants obtaining an SNDA from the lender.

If subtenant wants an SNDA, what are master-landlord’s obligations with respect to the SNDA request?

What party is responsible for paying any costs associated with the SNDA?

Does the subtenant have the right to make alterations to the space?

If the sub-landlord has pylon/monument signage rights, does the subtenant get the benefit of these rights in the sublease?

Are there provisions under the lease that become invalid if the tenant subleases the space (i.e. renewal provisions)? Sample forms follow.

Space Reduction Agreement

This Amendment to Lease (“Amendment”) is made this ____ day of _________________, _________, by and between ____ (“Landlord”) and ______ (“Tenant”).

RECITALS WHEREAS, Landlord and Tenant entered into a Lease dated _____ for premises containing approximately ____ square feet (the “Original Premises”) in the shopping center known as ________ Shopping Center, located at _________ (the “Shopping Center”); WHEREAS, Landlord and Tenant desire to reconfigure and reduce the size of the Original Premises demised under the Lease, and to otherwise modify the terms of the Lease as set forth below; and WHEREAS, Guarantor is willing to guarantee the performance of the obligations of Tenant, in the manner hereinafter provided. IT IS, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, agreed as follows: 1. Recitals; Terminology. The recitals set forth hereinabove are incorporated into this Amendment the same as if fully set forth hereinbelow. 2. New Premises. The “New Premises” is hereby defined as the portion of the Original Premises that is designated by cross-hatching on the site plan attached hereto as Exhibit A. The “Returned Premises” is that portion of the Original Premises that is so labeled on Exhibit A. Landlord shall have the right to show, at reasonable times, the Premises during ordinary business hours to any existing or prospective tenant contemplating the leasing of the Returned Premises. Additionally, Landlord shall have the right to display a “For Lease” sign on any portion of the storefront serving the Returned Premises. 3. Surrender of Returned Premises; Renovation Allowance. On or before 11:59 p.m. (Eastern Daylight Time) on _____ (the “Surrender Date”), Tenant shall: (a) remove Tenant’s furniture, trade fixtures, equipment, and other property from the Returned Premises; (b) construct a demising wall separating the Returned Premises from the New Premises (pursuant to a plan first approved in writing by Landlord, such approval not to be unreasonably withheld); (c) disconnect and/or reconfigure any building systems serving the Original Premises (i.e., serving the Original Premises as of the date hereof), so that such systems no longer serve, or remain connected to, the Returned Premises; and (d) surrender the Returned Premises to Landlord in “as is,” broom clean condition. 4. Access Following Surrender Date. From and after the Surrender Date, Landlord and its agents may enter the New Premises at any time, and with reasonable advance notice to Tenant, to make any repair or alteration to the New Premises that is necessary or desirable to prepare the Returned Premises for reoccupancy (including, but not limited to, performing any repair or alteration to the demising wall, constructed by Tenant pursuant to Paragraph 3 hereinabove, separating the New Premises from the Returned Premises). Landlord agrees that, with respect to any entry into the New Premises (pursuant to this Paragraph 4) during Tenant’s business hours, Landlord shall use reasonable efforts not to unreasonably interfere with Tenant’s business operations in the New Premises. Except as expressly provided for in this Amendment, any entry by Landlord into the New Premises in accordance with any provision of the Lease shall not affect any of Tenant’s obligations under the Lease.

5. Applicability and Modification of Lease Agreement Provisions. Upon the Surrender Date, all references in the Lease to the “Premises” and words of similar import (i.e., the Original Premises, Leased Premises, Demised Premises, etc.) shall mean and refer to the New Premises, and all other terms and conditions of the Lease shall remain in full force and effect, except that, effective upon the Surrender Date, the following shall apply: a. Surrender Date. At 11:59 p.m. (Eastern Standard Time) on the Surrender Date, Tenant shall have no further right to occupy the Returned Premises, and Landlord shall be released of any further obligations to Tenant under the Lease respecting the Returned Premises. Tenant’s failure to vacate the Returned Premises by 11:59 p.m. (Eastern Standard Time) on the Surrender Date (time being of the essence), shall constitute a default under the Lease, entitling Landlord to any and all remedies available under the Lease, and/or

at law, and/or in equity (which remedies shall include, but not be limited to, all remedies that would be applicable if Tenant failed to immediately surrender the Original Premises upon the expiration of the term of the Lease). b. Rentable Square Feet of Demised Premises. The rentable square footage of the New Premises shall be deemed to be _____ square feet. c. Minimum Rent, Common Area Maintenance Charge, Insurance Charge, and Taxes. The Minimum Rent payable by Tenant to Landlord from and after the Surrender Date is ____________. The Common Area Maintenance Charge payable by Tenant to Landlord from and after the Surrender Date is ________ per month, subject to adjustment pursuant to the terms of the Lease. The Insurance Charge payable by Tenant to Landlord from and after the Surrender Date is ________ per month, subject to adjustment pursuant to the terms of the Lease. The Taxes payable by Tenant to Landlord from and after the Surrender Date is ________ per month, subject to adjustment pursuant to the terms of the Lease.

6. Survival of Obligations. Any obligations of Tenant under the Lease (with respect to the Premises) that accrue prior to Tenant surrendering the Returned Premises to Landlord (in the condition required by this Amendment) shall remain in effect until such obligations are satisfied and shall expressly survive Tenant’s surrendering of the Returned Premises.

7. Defined Terms. Capitalized terms used herein but not defined in this Amendment that are defined in the Lease shall have the meanings set forth in the Lease.

8. Confirmation of Terms. All of the terms, covenants and conditions of the Lease, except as are herein specifically modified and amended, shall remain in full force and effect and are hereby adopted and reaffirmed by the parties hereto. IN WITNESS WHEREOF, the parties hereto have executed this Amendment under seal as of the date first hereinabove set forth, intending it to be both legally binding and an instrument under seal. WITNESS: LANDLORD: By: By: (SEAL) Print Name: Print Name: Title: Title: WITNESS: TENANT: By: By: (SEAL) Print Name: Print Name: Title: Title:

EXHIBIT A

Site Plan The designation and location of store units, tenant names, sizes of premises and other information, is not a representation by Landlord that such conditions exist or that, if they do exist, that they will continue to exist throughout all or any part of the Term.

MASTER LANDLORD’S CONSENT TO SUBLEASE AND NON–DISTURBANCE AGREEMENT

THIS MASTER LANDLORD’S CONSENT TO SUBLEASE AND NON–DISTURBANCE AGREEMENT (“Consent Agreement”) is entered into as of ______________, by and among ____________________________ (“Master Landlord”),______________________ (“Sublandlord”), and ___________________________ (“Subtenant”).

Recitals

A. Pursuant to that certain lease between Master Landlord and Sublandlord, dated as of ______________ (“Master Lease”), Master Landlord leased to Sublandlord that certain premises located in the shopping center development commonly known as ______________ (“Shopping Center”), which store has a street address of ______________ (“Subleased Premises”).

B. Sublandlord desires to sublease the Subleased Premises to Subtenant pursuant to

that certain sublease dated __________, between Sublandlord and Subtenant, a copy of which sublease is attached hereto as Exhibit “A” and made a part hereof (“Sublease”).

C. Sublandlord and Subtenant have requested Master Landlord to consent to the

Sublease and modify and amend the Lease by entering into and delivering this Consent.

D. Master Landlord is willing to grant its consent to the Sublease and modify and amend

the Lease on the terms and conditions set forth herein, as evidenced by Master Landlord’s execution and

delivery of this Consent.

NOW, THEREFORE, in consideration of the premises and other good and valuable

consideration, the mutual receipt and legal sufficiency of which the parties hereto hereby acknowledge

Master Landlord, Sublandlord and Subtenant hereby agree as follows:

1. Definitions. Each capitalized term used and not otherwise defined herein shall have

the meaning ascribed thereto in the Sublease. 2. Recitals. The above Recitals are true and correct and are incorporated herein. 3. Lease Amendment; Landlord Consent. The parties acknowledge and agree that this

Consent Agreement modifies and amends the Lease. Master Landlord hereby consents to the Sublease on the terms and conditions provided herein, but only to the extent expressly provided herein.

4. Sublease Subject to the Lease; Sublandlord Not Released. The Sublease shall be

subject to the terms and provisions of the Lease as modified and amended by this Consent. Nothing contained herein shall operate to waive, modify, impair, release, or in any manner affect Sublandlord’s liability under the Lease.

5. Use. Notwithstanding anything to the contrary in the Lease, the Subleased Premises

may be used for the operation of _______________________________ (“Subtenant’s Use”). Master Landlord hereby represents and warrants that nothing in the Master Lease or the Exhibits to the Master Lease prohibits the operation on the Subleased Premises for Subtenant’s Use.

6. Renovation of Subleased Premises. Master Landlord and Sublandlord acknowledge

that the Subleased Premises will require modifications to accommodate Subtenant’s store. Master Landlord consents to the changes to be made by Sublandlord pursuant to Exhibit ____ (“Sublandlord’s Plans”); and Master Landlord consents to the changes to be made by Subtenant pursuant to Exhibit ____ (“Subtenant’s Plans”) (Sublandlord’s and Subtenant’s Plans are sometimes collectively referred to as the “Proposed Renovations”). Master Landlord and Sublandlord, at no cost to either party, shall cooperate with Subtenant in obtaining all necessary permits and approvals for Subtenant’s Plans, Master Landlord expressly waives all statutory and common law lien rights with respect to Subtenant’s personal property and fixtures.

7. Non–Disturbance. Master Landlord shall not, in the exercise of any of the rights arising or which may arise out of the Master Lease or of any instrument modifying or amending the same or entered into in substitution or replacement thereof (whether as a result of Tenant’s default or otherwise), disturb or deprive Subtenant in or of its possession or its rights to possession of the Subleased Premises or of any right or privilege granted to or inuring to the benefit of Subtenant under the Sublease, provided that Subtenant is not in default under the Sublease beyond the expiration of any applicable notice and cure period.

8. Direct Lease. In the event of the termination of the Master Lease by reentry, notice, conditional limitation, surrender, summary proceeding or other action or proceeding, or otherwise, or, if the Master Lease shall terminate or expire for any reason before any of the dates provided in the Sublease for the termination of the initial or renewal terms of the Sublease, Subtenant shall not be made a party in any removal or eviction action or proceeding nor shall Subtenant be evicted or removed of its possession or its right of possession of the Subleased Premises be disturbed or in any way interfered with, and the Sublease shall continue in full force and effect as a direct lease between Master Landlord and Subtenan.

8.1 Subtenant’s Rights. Subtenant’s rights as a direct lessee of Master Landlord

shall include all rights granted Sublandlord in the Master Lease, including, without limitation, the right to extend the Term of the Lease (and subsequent terms of the Lease) as provided in the Master Lease.

9. Direct Landlord. Subtenant agrees that if Subtenant should become a direct tenant of

Master Landlord for the Subleased Premises or any part thereof upon the expiration or earlier termination of the Master Lease, Master Landlord shall not: (a) be liable for any previous act or omission of Sublandlord under the Sublease, unless resulting from an event of default by Master Landlord; (b) be subject to any offset or credit which shall theretofore have accrued to Subtenant against Sublandlord; (c) have any obligation whatsoever with respect to any security deposited under the Sublease; (d) be bound by any previous prepayment of rent or any other advance payment of monies due under the Sublease unless received by Master Landlord; and (e) be responsible for the payment of any commission or fees in connection with a direct lease between Master Landlord and Subtenant.

10. Additional Agreements by Master Landlord. Master Landlord agrees that Subtenant

shall not be: (a) liable for any previous act, default, or omission of Sublandlord; (b) bound by any amendment or modification of the Master Lease made after the date hereof other than as provided in the Master Lease without Subtenant’s consent thereto, which consent shall not be unreasonably, withheld, conditioned or delayed; or (c) bound by any obligation to make any payment to or on behalf of Sublandlord not disclosed in the Master Lease. Master Landlord agrees that it will not amend the Master Lease without the prior consent of Subtenant, which consent Subtenant shall not be unreasonably, withheld, conditioned or delayed.

11. Representations and Warranties of Landlord and Sublandlord. Master Landlord

and Sublandlord hereby represent and warrant to Subtenant that as of the date hereof: 11.1 No Modifications. A true, correct, and complete copy of the Master Lease is

attached to the Sublease. The Master Lease has not been modified or amended;

11.2 Full Force. The Master Lease is in full force and effect;

11.3 No Defaults. To the best of each of Master Landlord’s and Sublandlord’s knowledge, after due and reasonable inquiry, neither Master Landlord nor Sublandlord is in default under any of the terms, covenants, or provisions of the Lease and neither Master Landlord nor Sublandlord, to the best of his/her knowledge, know of any event which but for the passage of time or the giving of notice or both would constitute default by Sublandlord or Master Landlord under the Lease;

11.4 No Outstanding Rent Due. All rents, additional rents, or other sums due and

payable under the Lease have been paid in full through the date hereof; and 11.5 Lease Term. The term of the Master Lease expires on _________________,

subject to extension as provided for in the Master Lease; 12. Notices.

12.1 Generally. Master Landlord shall promptly send a copy to Subtenant of any and all written correspondence and notices Master Landlord sends to Sublandlord with respect to the Lease and the Premises. Each party hereto shall, upon the giving of any notice to a party to this Consent required to be given hereunder or under the Lease, concurrently give a copy of such notice to the other party hereto in the same manner.

12.2 Procedure. Any Notices under this Consent shall be given in writing, by: (i)

mailing the same by United States mail, postage prepaid, certified or registered mail, return receipt requested; or (ii) nationally recognized overnight delivery service providing proof of delivery, addressed to the Master Landlord, Sublandlord, or Subtenant as the case may be, at the respective addresses set out below, or at such other addresses as they may hereafter specify by written notice delivered in accordance herewith:

Notices to Master Landlord: Notices to Sublandlord:

Notices to Subtenant:

Notices under this Section shall be deemed delivered as follows: (a) if by certified or registered

mail, upon actual delivery as evidenced by the return receipt or in the event the return receipt indicates a refusal of acceptance of delivery, delivery shall be deemed complete on the date indicated for such refusal; or (b) if by nationally recognized overnight delivery service, upon actual delivery as evidenced by the service’s written or electronic record of delivery or date of refusal.

13. Subordination. The Lease shall not be subordinated by Master Landlord to any

mortgage of the Master Landlord’s interest under the Lease unless and until Subtenant has received a

non–disturbance agreement in form reasonably acceptable to Subtenant.

14. Miscellaneous. Captions. The captions contained in this Consent Agreement are for convenience only

and shall in no way define, limit, or extend the scope or intent of this Consent Agreement, nor shall such captions affect the construction hereof.

Parties Bound. This Consent Agreement shall be binding upon and inure to the benefit

of Master Landlord, Subtenant, and Sublandlord and their respective successors and assigns. Governing Law. This Consent Agreement shall be governed by and construed in

accordance with the laws of the state in which the Premises is located. Attorneys’ Fees, Costs, and Expenses. In any action or proceeding arising out of this

Agreement, the prevailing party in such action or proceeding shall be entitled to recover from the other party thereto the reasonable attorneys’ fees and costs, including one or more appeals, court costs, filing fees, publication costs, and other expenses incurred by the prevailing party, without regard to principles of conflicts of laws.

No Waiver. No waiver of any provisions of this Consent Agreement by either party shall

be deemed to imply or constitute a further waiver by such party of the same or any other provision hereof. Time. Time is of the essence of this Consent Agreement with respect to the due

performance of the terms, covenants, and conditions herein contained, and all provisions herein relating thereto shall be strictly construed.

Severability of Provisions. If any term or provision of this Agreement or the application

thereof to any party or circumstance shall to any extent be invalid or unenforceable, the remaining terms

and provisions shall not be affected thereby, and each term and provision of this Consent Agreement shall be valid and be enforced to the fullest extent permitted by law.

15. Additional Representations. Sublandlord and Subtenant agree that: (i) a copy of the

Sublease has been furnished to Master Landlord; (ii) Master Landlord is not a party to the Sublease and is not bound by the provisions thereof except as expressly provided in this Consent; and (iii) notwithstanding the foregoing, the Sublease will not be modified or amended in any way without the prior written consent of Master Landlord.

16. Additional Remedies. If Sublandlord breaches any of the terms and provisions of the

Lease, so long as such default shall continue to exist, Master Landlord may elect to receive directly from Subtenant all sums due or payable to Sublandlord by Subtenant pursuant to the Sublease, and upon receipt of Master Landlord’s notice, Subtenant shall thereafter pay to Master Landlord any and all sums becoming due and payable under the Sublease and Sublandlord shall receive from Master Landlord a corresponding credit for such sums against any payments then due and thereafter becoming due from Sublandlord.

17. Further Assurances. Each party hereto agrees to execute and deliver such

instruments as may reasonably be requested by the other party to evidence and confirm Subtenant’s

direct leasing relationship with Master Landlord.

18. Entire Agreement. As of the date hereof, the Consent Agreement constitutes the entire

agreement by Sublandlord to Subtenant as to their relationship with respect to the subleasing of the

Subleased Premises.

IN WITNESS WHEREOF, Master Landlord, Sublandlord, and Subtenant have duly executed and

delivered this Consent Agreement as of the day and year first above written.

MASTER LANDLORD:

By: _____________________________ Printed Name_____________________ Title: ____________________________ Date:____________________________

SUBLANDLORD:

By: _____________________________ Printed Name_____________________ Title: ____________________________ Date:____________________________

SUBTENANT:

By: _____________________________ Printed Name_____________________ Title: ____________________________ Date:____________________________

[PAGE LEFT BLANK – SAMPLE SUBLEASE FOLLOWS]

SUBLEASE

THIS SUBLEASE is entered into as of ___________, _________, by (“Sublessor”), whose address is and (“Sublessee”) whose address is .

R E C I T A L S

A. Sublessor is the tenant under a [Lease Agreement] between _______________ (the “Prime Lessor”) and Sublessor dated ____________ (the “Prime Lease”), a copy of which is attached as Exhibit A to this Sublease. The Prime Lease demises certain real property in ________________, ___________ County, ______________.

B. Sublessee wishes to sublease from Sublessor [the entire] [a portion of the] premises demised under the Prime Lease, and Sublessor is willing to sublease such space to Sublessee under the terms and conditions set forth in this Sublease.

A G R E E M E N T

NOW, THEREFORE, the parties hereby agree as follows:

1. Description and Demise of Premises. Sublessor hereby demises and leases to Sublessee, for the term specified in Paragraph 2 below, [all of the premises demised to Sublessor under the Prime Lease] [that portion of the premises demised to Sublessor under the Prime Lease indicated by shading on Exhibit B to this Sublease] (the “Subleased Premises”). The parties agree that, for purposes of any provision of this Sublease relating to the area of the Subleased Premises, the Subleased Premises consist of square feet.

2. Term. The term of this Sublease shall begin on , ____ and shall end on , unless [extended pursuant to the provisions of paragraph or] terminated earlier pursuant to the provisions of paragraph 9.

3. Partial Incorporation of Prime Lease. The following provisions of the Prime Lease are by this reference made part of this Sublease:

______________________________________________________________________________

______________________________________________________________________________

______________________________________________________________________________

Any provision of the Prime Lease that is not listed in this paragraph 3 but is referred to in another provision of the Prime Lease that is listed above in this paragraph 3 is incorporated only for the purpose and to the extent necessary to give meaning to such reference. The terms “Landlord” and “Tenant” as used in such provisions of the Prime Lease shall be deemed to refer to “Sublessor” and “Sublessee” respectively for purposes of this Sublease, but nothing in this Sublease shall be construed to make Sublessor personally liable for the performance or nonperformance of any obligation of the landlord under the Prime Lease. Sublessee acknowledges that Sublessee has read and is familiar with all of the Prime Lease, and hereby agrees to perform the obligations, and to be bound by the conditions and limitations, imposed on the tenant under the Prime Lease by the provisions of the Prime Lease incorporated in this Sublease, insofar as such obligations, conditions, and limitations relate to the Subleased Premises.

4. Base Rent. Sublessee agrees to pay to Sublessor, as base rent for the Subleased Premises with respect to each month during the Term of this Sublease, an amount equal to the base rent payable under the Prime Lease with respect to the same month. If the term of this Sublease begins on a day other than the first day of a calendar month, rent for the first partial month shall be prorated on a daily basis. Each installment of base rent under this Sublease shall be due in advance, without demand or notice, three business days before the date on which the corresponding installment of base rent under the Prime Lease is due. Unless Sublessor otherwise instructs Sublessee in writing, all base rent, and any additional rent payable to Sublessor pursuant to paragraph 5 below, shall be paid to Sublessor at the following address:

Attention:

5. Pass-Through of Additional Rent. In addition to the base rent provided for in paragraph 4 above, Sublessee shall pay on demand all amounts of additional rent or other charges billed to Sublessor by the Prime Lessor pursuant to Sections of the Prime Lease with respect to any period during the term of this Sublease. The following provisions shall be applicable to such payments:

(a) To the extent such amount is payable with respect to a period beginning before the commencement of the term of this Sublease, the total amount payable shall be prorated on a daily basis between the portion of such period that predates such commencement and the portion that does not predate such commencement. Sublessee shall be obligated to pay only the latter portion.

(b) Promptly after receiving from the Prime Lessor any notice, statement or demand relating to additional rent, Sublessor shall deliver a copy of such notice, statement or demand to Sublessee, together with (if applicable) a statement showing the computation of Sublessee’s share of any amounts payable thereunder. Sublessee shall pay any such amount not later than the later of (i) three business days before the date on which Sublessor’s corresponding payment to the Prime Lessor is due, or (ii) five days after Sublessor’s delivery to Sublessee of the notice, statement or demand.

(c) Any subsequent adjustment to or reconciliation of amounts paid by Sublessor to the Prime Lessor as additional rent (with respect to any period during the term of this Sublease) shall apply equally to amounts paid by Sublessee to Sublessor under this paragraph 5.

(d) The obligations of the parties under this paragraph 5 shall survive the expiration or earlier termination of this Sublease, until the actual amount of additional rent payable by Sublessor during the period ending with the expiration or earlier termination of this Sublease has been finally determined and appropriate adjustments have been made between Sublessor and the Prime Lessor and between Sublessor and Sublessee.

6. Condition of Subleased Premises. Sublessee acknowledges that Sublessee has inspected the Subleased Premises and accepts the Subleased Premises in their present condition. Sublessor shall have no liability for, or obligation to repair, any patent or latent defect in the Subleased Premises.

7. Insurance; Indemnification. In complying with the insurance provisions of the Prime Lease incorporated by reference in this Sublease, Sublessee shall cause each insurance policy to name the Prime Lessor as well as Sublessor as an additional insured. In addition, Sublessee shall indemnify Sublessor and hold Sublessor harmless against any loss, claim, damage, or expense that may be asserted against or incurred by Sublessor in connection with any actual or alleged injury to any person or property occurring in, or as a result of any condition or use of, the Subleased Premises.

8. Assignment; Subletting. Without the prior written consent of Sublessor, Sublessee shall not encumber, assign or transfer this Sublease, as security or otherwise, or permit Sublessee’s interest in this Sublease to be assigned, transferred or encumbered, by operation of law or otherwise, or sublet the Subleased Premises or any part thereof. Any purported assignment, transfer or encumbrance of Sublessee’s interest in this Sublease, and any purported sub-sublease, made without the prior written consent of Sublessor shall, at Sublessor’s option, be void and of no effect. Notwithstanding Sublessor’s consent to any assignment or sub-subletting, Sublessee shall remain directly and primarily responsible for the faithful performance and observance of all of the covenants and conditions of this Sublease, and Sublessor’s consent to any assignment, transfer, encumbrance or sub-subletting shall not operate or be construed as consent to any further assignment, transfer, encumbrance or sub-subletting.

9. Termination of Prime Lease. This Sublease shall terminate immediately upon the termination or expiration of the Prime Lease. Unless the Prime Lease is terminated because of a default under the Prime Lease by Sublessor, Sublessor shall have no liability to Sublessee for such termination, other than to refund on a prorated basis any unearned prepaid rent for the calendar month in which such termination occurs. In no event shall Sublessor be obligated to exercise any option to renew or extend the Prime Lease.

10. Notices. Any notice required or permitted to be given under this Sublease must be in writing and will be deemed given (a) on personal delivery during normal business hours, (b) on the fourth business day (i.e., a day on which commercial banks in New York City are required to be open for business) after mailing by registered or certified U.S. mail, postage prepaid, or (c) on the first business day after prepaid deposit with a major overnight courier service that guarantees next-business-day delivery, under circumstances such that the guaranty is applicable, in any case to the appropriate party at such party’s address for notices. The addresses for notices are as follows: If to Sublessor: Attn: with a copy to: Attn: If to Sublessee: Attn: with a copy to: Attn:

Either party may change its address for notices or copies of notices by notice to the other party in accordance with this article.

11. Holding Over. Sublessee acknowledges that Sublessee's failure to surrender possession of the Subleased Premises immediately upon the expiration of this Sublease might constitute a default by Sublessor under the Prime Lease and subject Sublessor to liability to the Prime Lessor. Accordingly, if Sublessee remains in possession of the Subleased Premises after the expiration of this Sublease without the written consent of Sublessor or of the Prime Lessor, then Sublessee shall be deemed to have detained the Subleased Premises unlawfully. In the absence of a written agreement to the contrary, no tender by Sublessee, and no acceptance by Sublessor or the Prime Lessor, of any payment after the expiration of this Sublease, whether designated as rent or otherwise, shall be deemed to evidence or give rise to a tenancy of any kind, but instead shall be construed as a payment on account of damages resulting from Sublessee's unlawful detention of the Subleased Premises.

12. Brokers. Each party represents and warrants to the other that the representing party has had no dealings with any real estate broker or agent in connection with this Sublease, and agrees to indemnify the other party against any loss, claim, damage or expense, including reasonable attorneys’ fees, that may be incurred by such other party in connection with any claim that is inconsistent with the representing party’s representation in this paragraph.

13. Consent of Prime Lessor. Notwithstanding any other provision of this Sublease, the rights and obligations of each party under this Sublease (other than their respective rights and obligations under this paragraph) are contingent on the approval of this Sublease by the Prime Lessor. Sublessor shall submit this Sublease to the Prime Lessor for approval promptly after it has been executed by both parties, and each party shall provide such further information and shall take such further action as the Prime Lessor may reasonably request in connection with its review of this Sublease. If for any reason the Prime Lessor has not consented in writing to this Sublease by , , then this Sublease shall terminate and neither party shall have any obligation or liability to the other party, except for such obligations or liabilities as may arise under this paragraph.

Signed and delivered as of the date first mentioned above.

SUBLESSOR:

By Name: Title:

SUBLESSEE:

By Name: Title:

CONSENT BY PRIME LESSOR

The undersigned hereby (1) certifies to the Sublessor and the Sublessee named in the foregoing Sublease that, as of the date this Consent is executed and delivered, the undersigned is the Landlord under the Prime Lease described in the foregoing Sublease and owns the Building identified in such Prime Lease, and (2) consents to the execution and delivery of such Sublease, and to the subleasing and use of the Premises as provided therein for the purposes mentioned therein. This consent shall not be deemed to extend to any further subletting of such Premises, nor shall it be construed to release the Sublessor from any obligation or liability under the Prime Lease (other than obligations or liabilities that the Sublessor would have in the absence of this Consent).

Signed and delivered , 200 .

By Name: Title:

EXHIBIT A

to

SUBLEASE

(Copy of Prime Lease)