LEASE AGREEMENT REFERENCE GUIDE 1200: STRATEGIES FOR THE MAJOR INDUSTRIAL TENANT $49.95
STRATEGIES FOR THE MAJOR INDUSTRIAL TENANT
The Major Industrial Tenant and Its Wish List on Use, Termination, Common Areas, and Assignment
When a major industrial tenant takes an entire building in a business park, the lease negotiations can be brutal for the landlord. A substantial tenant has strong leverage, and this will ultimately lead to reduced rights of approval for the landlord in areas of the lease where the landlord customarily calls the shots, at least with smaller tenants. These areas include use, common area maintenance and reimbursement, assignment, and early termination rights.
Use and Assignment
For example, major tenants usually negotiate for the right to use the premises for any legal use, and failing that, for broad flexibility to change the permitted use of the premises without the landlord's consent. Industrial lease terms can be lengthy to permit amortization of improvements and recovery of the cost of tools and equipment. Lengthy terms make the prospect of a change of use more likely, particularly if the tenant manufactures several different sorts of products, such as personal computers, copiers, and other consumer electronics.
Likewise, the major tenant will no doubt want wide latitude to assign and sublease in view of the lengthy term, with minimum interference from the landlord. This includes not only intracorporate transfers to all corporate affiliates, parents, and subsidiaries, but also the right to assign or sublease to third parties without the landlord's consent.
You're Committed, I'm Not
Even though the tenant may not be committed concerning use and assignment, the major industrial user will likely want the landlord totally committed with regard to how the common areas in the business park will be used and maintained in the future. The tenant will probably want exclusions from its common area costs, as well as approval rights over any changes to the common areas near its premises. And it will want restrictions on the use of common areas for the construction of other buildings in the park.
Termination and Unfeasibility
The tenant may also seek to negotiate termination rights, exercisable if the tenant determines that it is no longer economically feasible to operate in the premises. Such termination rights may or may not require the payment of a termination payment to the landlord if the tenant elects to walk under the provision. Economic termination clauses represent the ultimate irony for the landlord if exercised by the tenant. The landlord is committed to the major industrial tenant for a lengthy term under the lease, has given extensive covenants to the tenant relating to the common areas and how they will be maintained and used, has little control over lease transfers, and no approval rights regarding the use of the premises. After all this, the major tenant walks because it decides that it can't make any money in the premises.