The rent roll tells you what tenants pay. The leases tell you whether they have to keep paying, what they can demand from you, and whether they can leave early. Lease and tenant DD is about understanding the actual obligations on both sides — and identifying the clauses that turn good rent into bad rent.

This lesson covers reading leases, getting estoppels, lease abstracting, and assessing tenant credit risk.

Why lease DD matters more than rent roll DD

The rent roll says "Tenant X pays $5,000/month." The lease might say:

$5,000/month, 5 years remaining, no termination right → exactly what the rent roll suggests
$5,000/month, 5 years remaining, termination right after Year 1 → could vanish
$5,000/month, 5 years remaining, $50K of free rent in Year 3 → not really $5K/month
$5,000/month, 5 years remaining, but tied to a co-tenancy clause that's about to trip → could demand reductions
$5,000/month, 5 years remaining, but with an option to renew at FMV (likely lower than current) → declining trajectory
$5,000/month, expired lease, holdover → could leave with 30 days notice

Same rent roll line, six wildly different realities. Lease DD finds the difference.

What to request from the seller

For every tenant on the rent roll:

Original lease document with all amendments
All amendments and modifications in chronological order
Exhibits (rules and regulations, parking provisions, signage, expansion options, etc.)
Letters / correspondence between landlord and tenant about any disputes or modifications
Estoppel certificate (you'll send this; the seller helps you collect)
Subordination, Non-Disturbance, and Attornment Agreement (SNDA) if existing — your lender will require new ones for major tenants
Tenant correspondence about defaults, late payments, repairs, complaints
Security deposit verification (where held, amount, accrued interest)

Common problem: sellers provide the original lease but not the amendments. The amendments often have the most important provisions (rent reductions, term extensions, expansion rights, termination rights). Always ask explicitly: "Please provide all amendments and modifications to each lease."

The lease abstract

A lease abstract is a one-page summary of a lease document. For each tenant:

LEASE ABSTRACT — Suite 200, ABC Realty Tenant LLC

Property: 123 Oak Street, Casselberry FL
Suite: 200 (2,400 SF)
Tenant: ABC Realty Tenant LLC (real estate brokerage, 12 employees)
Guarantor: Personal guaranty by John Smith (Member-Manager)

LEASE TERM
Original commencement: 2022-08-01
Current expiration: 2027-07-31 (4 years 3 months remaining as of 2026-04-01)
Renewal options: 2 × 3-year renewals at FMV with 6 months advance notice

RENT
Base rent (current): $5,800/month ($29.00/SF NNN)
Rent escalations: 3% annual on lease anniversary
NNN charges (current): $850/month ($4.25/SF)
Total monthly: $6,650
Free rent given: 2 months at lease commencement (2022) — none remaining
TI allowance: $35/SF given at commencement — fully built out

EXPENSES
Type: NNN — tenant pays pro-rata share of property taxes, insurance, CAM
Tenant share: 18.5% of building expenses
Caps on increases: 5% annual cap on controllable expenses
Audit rights: tenant has right to audit landlord's CAM annually

USE
Permitted use: Real estate brokerage office
Exclusive use: None
Restrictive covenants: None

ASSIGNMENT/SUBLET
Tenant may not assign without landlord consent (consent not unreasonably withheld)
Tenant may sublet up to 50% of space without consent

OPTIONS / RIGHTS
Right of first refusal on Suite 201 (adjacent vacant suite)
Termination right: NONE
Cancellation by either party: NONE

DEFAULTS
History: 1 late payment in 2024 (5 days late, fee paid)
Currently: Current as of 2026-04-01
Outstanding TI / unpaid balances: None

SECURITY DEPOSIT
Amount: $11,600 (2 months base rent)
Held by: Landlord operating account (Wells Fargo)

GUARANTORS
Personal guaranty by John Smith (verified personal financial statement on file)

NOTES / WATCH
- Lease expires in 2027; renewal will be at FMV
- Strong tenant, no payment issues
- Right of first refusal on Suite 201 limits landlord flexibility

This is what a good lease abstract looks like. Build one for every tenant. For a multi-tenant property with 20 tenants, that's 20 abstracts — and yes, it's tedious. It's also where you find the problems.

Critical lease clauses to scrutinize

Some clauses can blow up the deal. Look for these specifically.

1. Termination rights

Does the tenant have the right to terminate before lease expiration? Common forms:

Pure termination — "Tenant may terminate after the third anniversary upon 6 months' notice"
Termination for cause — landlord defaults
Co-tenancy termination — anchor tenant leaves, other tenants can leave
Casualty termination — fire/storm damage triggers right to leave
Operating cost termination — operating costs exceeding cap triggers right to leave
Failure to deliver — landlord didn't deliver some required service

A termination right means the lease term you're paying for is conditional. Underwrite accordingly.

2. Renewal options

Renewal options are usually tenant-favorable:

Right to renew at FMV — tenant decides whether to stay; rent renegotiated at expiration
Right to renew at fixed rent — locks in below-market rent
Right to renew at last rent + step — usually limits rent growth
Multiple renewals — locks tenant in for years past your hold period

When you sell, the buyer underwrites the renewal options as constraints. Long renewal options at fixed rents reduce your sale price.

3. Expansion rights

Right of first offer — landlord must offer adjacent space to existing tenant first
Right of first refusal — tenant can match any third-party offer for adjacent space
Option to expand — tenant can require landlord to deliver more space at a defined price

These limit your ability to lease adjacent space to higher-value tenants.

4. Co-tenancy clauses

A co-tenancy clause says: "If anchor tenant X (or X% of GLA) goes dark, my rent reduces (or I can leave)."

These exist in shopping centers and multi-tenant retail. Common forms:

Opening co-tenancy — initial occupancy requirement at delivery
Operating co-tenancy — ongoing occupancy requirement
Anchor co-tenancy — specific named anchors must remain

If you're buying a center where the anchor is shaky, co-tenancy clauses become time bombs. When the anchor leaves, multiple other tenants can demand rent reductions or terminate.

This is the single biggest reason for retail center value destruction in the past decade — anchor closures cascade through co-tenancy clauses to wipe out the rest of the tenant roster.

5. Exclusive use clauses

"No other tenant may operate a business that competes with [my use]." Common in retail.

If a strip center has a Subway with a "no other quick-service sandwich" exclusive, you can never lease another space to Jersey Mike's, Jimmy John's, etc. This dramatically limits your leasing options.

Read every tenant's exclusive use clause and map them to know what uses are still available.

6. Use restrictions

"Tenant shall use the premises only for [specific use]." If the tenant wants to change uses (from a hair salon to a tattoo parlor), they need landlord consent — and the landlord may not have any incentive to grant it.

Restrictive use clauses bind the tenant to their original purpose and reduce their ability to sublet to anyone different.

7. Assignment and sublet

Free assignment — tenant can transfer the lease to anyone
Assignment with consent — landlord consent required, with various standards
No assignment — tenant cannot transfer

If a tenant has free assignment, your "credit tenant" might suddenly be replaced by a much weaker tenant who took over the lease. You have no control.

8. Operating cost caps

Many leases cap how much landlord can pass through in CAM increases (e.g., "5% annual cap on controllable expenses"). When operating costs spike (insurance!), the cap means the landlord absorbs the difference.

Read every cap. Know which tenants are insulated and which aren't.

9. Audit rights

Tenants often have the right to audit landlord's CAM calculations. Audits can result in refunds going back several years. Coming into a property with potential audit liabilities is a hidden risk.

10. Holdover provisions

What happens if a lease expires and the tenant doesn't sign a new one but stays?

Month-to-month at last rent — bad for landlord
Month-to-month at 150% of last rent — neutral
Month-to-month at 200% of last rent — incentivizes renewal but creates legal complexity

11. Personal guaranty terms

If the tenant entity is an LLC, is there a personal guaranty? For how much? For how long? Some guaranties are limited (e.g., "first 3 years only") and have rolled off.

12. Default and remedies

What constitutes default? How long does the tenant have to cure? What remedies does the landlord have?

These determine how easily you can evict a non-paying tenant. Florida is generally landlord-friendly but lease specifics matter.

Estoppel certificates

An estoppel is a signed statement from the tenant confirming the lease facts and any disputes. It's the tenant's confirmation of what the lease actually says.

Why estoppels matter

Without an estoppel, you're trusting the seller's representation of the lease. With an estoppel, you have the tenant's direct confirmation. If the lease says one thing and the tenant claims another (after closing), the estoppel locks in the tenant's version as of the date signed.

What an estoppel says

Standard estoppel content:

Lease commencement and expiration dates
Current monthly rent and additional rent
Security deposit amount
Whether any rent has been prepaid
Any defaults by landlord (anything broken, owed, or in dispute)
Any defaults by tenant
Confirmation no claims for offset, deduction, or counterclaim
Any verbal agreements or modifications
Confirmation the lease (and amendments) is the entire agreement

How to get them

Prepare a draft estoppel for each tenant (your attorney can provide templates)
Send to the seller, who forwards to each tenant for signature
Tenants return signed estoppel within 10-30 days
Any discrepancies between the estoppel and the lease/rent roll get resolved

When tenants refuse to sign

Some tenants don't return estoppels. The PSA should require the seller to obtain estoppels for X% of tenants (or all major tenants). Without estoppels for major tenants, you may not be able to close.

If a tenant refuses to sign, that's a red flag. Find out why. Sometimes there's a dispute the seller didn't disclose.

When the estoppel disagrees with the rent roll

This happens. The tenant might say "actually I have $20K of unpaid TI from the original buildout" or "the landlord agreed verbally to a 3-month rent reduction" or "I'm exercising my termination right next month."

Each disagreement is a DD discovery. Resolve before closing or walk.

Lender estoppel requirements

If you're financing, the lender will require estoppels for major tenants (often defined as anyone over 5-10% of GLA). Plan timing around this — the lender can't close without estoppels in hand.

SNDA — Subordination, Non-Disturbance, and Attornment

For deals with debt, lenders typically require SNDAs from major tenants:

Subordination — tenant agrees their lease is subordinate to the lender's mortgage
Non-Disturbance — lender agrees not to terminate the lease in foreclosure (so the tenant can stay)
Attornment — tenant agrees to attorn to the new owner (the lender or a foreclosure buyer)

The negotiation is usually about non-disturbance language. Tenants want strong protection that their lease survives a foreclosure. Lenders want flexibility.

For your DD, verify that any required SNDAs can be obtained. Some old leases lack SNDA provisions and the tenant has no obligation to sign one. This can be a closing blocker.

Tenant credit due diligence

For major tenants (any tenant >10% of GLA, or any single-tenant deal), assess credit:

Public credit ratings

If the tenant is publicly traded or has a credit rating from S&P/Moody's, look it up:

Investment grade (BBB-/Baa3 or better): strong credit, low default risk
Below investment grade (BB+/Ba1 or worse): higher risk
No rating: typically smaller / private companies — assess separately

For a single-tenant NNN deal, the credit rating is the deal. AAA-rated tenant produces a 5.5% cap; unrated regional tenant produces a 7.5% cap. The spread is the credit risk premium.

Private company credit assessment

For private tenants, you need to assess credit through:

Financial statements — request 2-3 years of financials (income statement, balance sheet, cash flow)
Tax returns — sometimes available for smaller businesses
D&B report — Dun & Bradstreet credit rating, $50-$200
Personal credit on guarantors — pull personal credit if there's a guaranty
Court records — judgments, liens, prior bankruptcies
Industry knowledge — is the business stable, growing, declining?
Time in business — long-tenured businesses have lower default rates than startups
Site visit observations — does the business look healthy? Customers, employees, organization?

For private tenants, credit assessment is more art than science. Use multiple data points.

Industry / sector concentration

Beyond individual tenant credit, assess sector risk. A strip center where 4 of 8 tenants are restaurants has correlated risk — restaurants tend to fail together in downturns. A center with diversified uses (medical, retail, service, restaurant) has less correlated risk.

In office: tech tenants are concentrated risk in 2024-2025. Government tenants are stable but slow-paying.

In industrial: e-commerce and logistics are growing; manufacturing is mixed.

Build your tenant analysis with sector context, not just individual credit.

Tenant interview (when possible)

For multi-tenant commercial properties, ask the seller for permission to talk to major tenants directly. Many sellers will allow this; some won't.

If allowed, use the tenant conversation to:

Confirm satisfaction with the property
Identify maintenance issues
Understand expansion or contraction plans
Hear about disputes or unmet promises
Assess relationship quality with current owner

These conversations are often more revealing than any document. A tenant who's frustrated or planning to leave will tell you, in code or directly.

The "bad lease" walk

Sometimes lease DD reveals a tenant whose lease is so bad you can't fix it:

Long term remaining at significantly below-market rent
Multiple termination rights
Personal guarantor has died
Co-tenancy clause about to trip
Audit liability from prior CAM mistakes
Litigation pending

These leases reduce the deal's value. Either renegotiate the price to compensate or walk.

The seller usually didn't disclose these — they're hidden in the lease documents you have to actually read. Reading the leases is the work that produces the discovery.

What to take away

The rent roll tells you contracted rent; the lease tells you whether it's real
Build a one-page abstract for every tenant
Watch for: termination rights, co-tenancy, exclusives, expansion rights, operating cost caps, holdover provisions
Get estoppels from every tenant (or at least all major tenants); lenders require them
SNDAs are required by lenders for major tenants — verify they can be obtained
For major tenants, do credit DD: ratings, financials, D&B, personal guarantors
Sector concentration matters as much as individual credit
Talk to tenants when allowed — their honesty reveals what documents don't
Bad leases are often hidden in amendments — read every document

Next lesson: the DD-to-closing handoff — going hard, the final lender DD, the closing checklist, and what happens between satisfying contingencies and recording the deed.

Lease and Tenant Due Diligence