Exclusives, kickouts and cotenancies are typically the big three non-financial covenants that have to be confirmed on an acquisition because, along with the cash flow of the property, they have such an impact on value.
More often than not, these provisions are fairly obvious in a lease, But, sometimes they are buried. This past week, we were working on a property that a new client had acquired. As you will sometimes see in leases, most of the standard leases at this property contained the exhaustive list of all restrictions and exclusives for all tenants at the property. In one particular lease, the tenant did not have an exclusive contained within the body of the lease. Had there not been a line by line review of the exhaustive exhibit containing all of the exclusives for the property, the tenant’s own exclusive might have been missed. It was a “backdoor” exclusive – not addressed in the body of the but added, not by special stipulation, but by inclusion in that exhibit.
Sneaky? Yes. But the tenant got its exclusive. Fortunately, while our client was not previously aware of the exclusive, they had not unintentionally violated it.
There’s another clause you will sometimes see in a lease – “heading and captions.” In essence, it says that the headings and captions within the lease may not always properly address what’s in the clause. It’s there for a reason. There’s always something hidden in leases!