3-6-23 Adapting to the New Norm: Leveraging Tenant-Friendly Lease Clauses in a Post-Covid Workspace.
In a post-Covid world, remote and hybrid work has become increasingly common. As a result, many businesses now require less office space. In light of this trend, tenants have gained some additional leverage when negotiating leases for office space, and should advocate to include more flexible, tenant-friendly clauses and protections in such leases, such as an early termination option or a partial surrender option.
An early termination option is a clause that provides the tenant with the right to terminate the lease prior to the original expiration date, whereas a partial surrender option allows the tenant to reduce the size of the leased premises.
These lease provisions will typically require tenants to provide the landlord with prior written notice, and commonly require the payment of some form of termination or surrender fee, since a landlord generally expects to be reimbursed for certain unamortized leasing costs (such as tenant improvements and leasing commissions) that they would have otherwise realized through rent during the entire term. But even so, both of these options can be extremely beneficial to tenants as they provide flexibility to respond to a number of common events such as adverse changes in the economy, downsizing of the tenant's business, a consolidation of the tenant's portfolio through a merger or acquisition, or the increasingly efficient use of telework.
Although commercial landlords have historically resisted the inclusion of these tenant-friendly clauses, the current state of the commercial rental market provides tenants with more leverage to advocate for protections that would formerly been unavailable, such as an early termination option or a partial surrender option. Woods Oviatt Gilman's commercial leasing practice group has decades of collective experience in drafting and negotiating these types of provisions, and would be pleased to assist you with your leasing needs.
Sources:
Everything You Need to Know About The Early Termination Of A Commercial Lease, Allegro: Real Estate Brokers & Advisors, https://allegrorealty.com/arti...
Lauren Covell, Partial Lease Terminations: Accounting and Best Practices under ASC 842, Occupier (July 21, 2023), https://www.occupier.com/blog/....
What Landlords Need to Know About Early Lease Termination, Innago (Dec. 2, 2023), https://innago.com/what-landlo....
