Net Lease Purchase Contracts Tilt Toward Sellers

By Keat Foong, Finance Editor

Competition for credit-tenanted net lease properties in strong locations is intense, according to Steven Lurie, partner at the law firm of Greenberg, Glusker. Consequently, sales contracts “are fairly favorable to sellers” in the current market. “There are lots of demand for good, well-located properties leased to high-quality tenants.”

Lurie observed that in the current market, sellers are better able to negotiate, for example, limitations on buyers’ remedies to cap the amount of damages that buyers are entitled to pursue in the event of seller default or breach of warranty.

For example, if the buyer discovers a breach of contract after closing, there would be a liability cap on the seller’s responsibility. Or if the seller terminates the agreement, the buyer’s recourse is limited to the deposit and out-of-pocket expenses.

Lurie advises that the net lease property purchasers need to ensure the lease needs are “well drafted and financeable.” The buyer would want to ensure, for instance, that the tenant delivers a Subordination, Non-Disturbance and Attornment Agreement that satisfies the lender. Through the document, the lender would, among other things, aim to prevent the landlord and tenant from amending the lease without their consent and keep the lease in place in the case of foreclosure.

This sidebar accompanies “Day in the Sun,” the net lease article in the April 2014 issue of Commercial Property Executive, which details the shift away from double-net leases in favor of triple-net leases.