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Posted by Max in OH on March 31, 2004 at 10:24:59:

Made an offer that was accepted on a neighborhood center. Seller to master lease at $12/sq ft for 12 months any space unleased as of 48 hr prior to closing, payable as lump sum at closing. Now he has leased some of this space for $6/sq ft for first year, escalating to $10 thereafter for the remaining 2 yr of lease term. This was a promotional deal to entice the tenant, who is reportedly doing about $80k of TI.

Am I entitled to get $6/sq ft master lease on this space from seller to make up for the lost revenue in the first year? I think so, since that Year 1 revenue was calculated into the basis for my offer. But I do not want to be unreasonable.

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Posted by ray@lcorn on April 02, 2004 at 15:09:15:

Max,

This is a common problem, and why any contract should have a clause requiring the seller to obtain the approval of the buyer regarding new leases procured prior to closing.

Evidently you have the opposite situation, where the seller had the ability to rent space up to 48 hrs pre-closing, hence being reponsible for less space on the master lease. If that is the case, then you inadvertently created an incentive for him to do exactly what he did.

Read the contract to ascertain whether there is any recourse available. Depending on the numbers with the tenant in place (and its ability to draw additional traffic to the center, a plus for the remaining space), and the quality of the tenant, the deal may still make sense. If not, then your only recourse is to again look to the contract for grounds to void the deal. If the contract has a well defined clause about "material changes in the operation" as grounds to cancel the contract, this should qualify.

ray

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