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Lease Strategies

Product Overview

This LARG contains the following items:

Major Tenant Termination Rights and Landlord Damage Control, and the Lease Clause Critique: Four Clauses That Let the Tenant Take a Walk.

Number of Single Spaced Pages: 12




This LARG focuses upon pro-tenant termination rights. If the tenant has the leverage to insist an early out be included in the lease, then the landlord had better be astute at the bargaining table in limiting the clause's effect. The first section outlines a couple of major strategies for the landlord who is forced to accept a tenant only termination right. The Lease Clause Critique contains four distinct tenant termination clauses with extensive comment. The sample clauses come from all major deal categories--office, industrial and retail.

Major Tenant Termination Rights and Landlord Damage Control

When major tenants negotiate long term leases for lots of space, they often bargain for some type of early termination right. Although landlords and their lenders do everything in their considerable powers to resist such early cancellation clauses, sometimes the tenant makes the termination clause a deal breaker. If the landlord wants the deal, it must agree to some form of early out for the tenant—it's that simple.

When that happens, the landlord needs to focus upon the structure and mechanics of the termination clause to minimize its impact on the lease. This means the landlord's damage control efforts during lease negotiations should concentrate upon:

  • Imposing specific conditions which must be satisfied before the tenant can exercise the termination right (e.g., impossibility of use of the premises by the tenant, three consecutive quarters of financial losses by the tenant prior to exercise, a corporate decision to close the subsidiary occupying the premises, merger or down sizing of tenant operations, etc.).
  • Limiting the scope of the clause. Can the termination right be limited to only a portion of the premises?
  • Negotiating large cash payments from the tenant if it decides to exercise (e.g., the cost of the tenant's unamortized improvements, brokerage and legal fees expended by the landlord to sign the lease, or a specified number of months or years of rent the tenant must pay to terminate, etc.). Such termination payments can ease the pain for the landlord if the tenant pulls out.
  • Imposing narrow windows for exercising the tenant's termination right, and providing that if the right is not exercised exactly as provided in the clause, it will lapse.


End of Excerpt