First Right to Acquire Adjoining Space

Next segment in our Leasing Series…First Right to Acquire Adjoining Space.

The concept of a Tenant having a ‘First Right’ to lease adjoining space, is often provided for in a standard lease agreement. The benefit to the Tenant is obvious, as it gives them first option on the space should it come available during the term and allows for premises to expand into. Typically the clause can be worded in one of two ways ---
i) the Tenant does not have to act on the space, until a 3rd party offer to lease comes forward – meaning they may be able to buy time during a vacant period.
ii) the Tenant receives notice immediately upon the space becoming vacant.

Landlords normally do not prefer the first option, as they have to engage a 3rd party tenant prospect on the space, serve notice, and wait the period out before knowing which party is taking the space. The 3rd party tenant does not normally care for this delay in learning whether or not they can proceed, given costs incurred in considering the premises (ie. drafting offer proposals, doing due diligence etc.). It can be rationalized as a cost of doing business with the initial Tenant, if at the end of the day it allows them to expand – which is ultimately good for the Landlord.

The second option simplifies the entire requirement, in that the Tenant receives notice immediately upon the space becoming available, or based on a set date at which it will become vacant. This can then allow a Landlord to offer it over to the adjoining tenant immediately upon it becoming available, and prior to having to market it.

As for notice periods, as with everything in commercial leasing, it is subject to negotiation and conditions in your particular market. Typically 1 week to 10 days would be deemed reasonable, with shorter periods favouring Landlords and longer periods favouring Tenants.

Again seek out experienced commercial realtors with strong leasing backgrounds, to assist you in negotiating the appropriate terms on the ‘First Right’ provision within your lease.