Ouch, Wish I Had Negotiated These Terms in My Commercial-Property Lease

By Randolph T. Mason, CCIM, SIOR, Partner, Commercial Realty Specialists

Three clauses that are very important in a lease include the holdover provision clause, the relocation clause and the sublease clause.

Under the holdover provision clause, the landlord is allowed to charge some rental amount that is above the last month’s rent the tenant paid during the last month of its lease term should the tenant stay in the property after its lease expires. I have seen these clauses as high as three and four times the last month’s rent. A typical and fair amount would be approximately 150 percent of last month’s rent. I like to negotiate this provision up front with a term that is more reasonable such as 125 percent of last month’s rent for say, three months and then the rent bumps up to the 150 percent number.

If a tenant is contemplating relocation, and his new space will not be ready upon by the time of his current lease expiration, this increased rent does not penalize him excessively in order to stay a few additional months.

Regarding the relocation clause, a landlord is allowed to relocate a tenant, usually to accommodate a larger tenant within the property. While this is not an unreasonable request for a smaller tenant, it can provide some unplanned inconveniences. The tenant may be asked to relocate during their busy season, which could greatly impact the tenant’s business. Often, negotiating the removal of this clause is typically not difficult provided it be done upfront, prior to the lease being executed. It’s an important clause to attempt to strike in order to mitigate any tenant disruptions. Remember, the landlord always has the option of approaching the tenant and asking him to relocate. A landlord usually pays all of the tenant’s costs due to such relocation.

The sublease clause is an important clause that benefits the tenant should the tenant need to get out of his existing lease obligation. This clause should be carefully reviewed by the tenant and his counsel in order to craft a clause that works for all parties. Generally speaking, a tenant cannot sublease his space without receiving the approval from the landlord, which should not be unreasonably withheld. Also, make sure the cost to the landlord is reasonable. I’ve seen clauses stating the landlord may charge the tenant all of its costs, which was very vague and could get rather expensive. Also, if it is a multi-tenant property, or the landlord has been in discussions with a prospective tenant, it should be allowed that the tenant could still sublease to that prospective tenant.

It is not uncommon for a landlord and tenant to split any of the profits that the tenant may receive from the new subtenant. The landlord should respond to tenants’ requests within a reasonable period of time, which should be no longer than 30 days after landlord’s receipt of a request for consent to a proposed transfer. If it takes too long to get the landlord’s approval, most likely the replacement tenant will go elsewhere.

There are many items in a lease that need to be scrutinized in order to have a fair and equitable contract between the tenant and the landlord, and a competent real estate attorney is a person to help craft those changes.