Thursday, February 9, 2012

Early Termination Provisions

Next segment in our Leasing Series…Early Termination Provisions.

Early termination provisions can be included by either landlord or tenant, within the provisions of an Agreement to Lease. Often referred to as a ‘Break Clause’, they allow the lease to be terminated, subject to meeting certain conditions for termination. Let’s consider it from both sides, to demonstrate how and why it may be necessary for either side to consider such a provision within a term lease.

A typical example with respect to a tenant, might be due to a loss of funding - say in the case of a non-profit organization, where the ability to fund operations cease. In this case, if the Tenant requires continuation of funding on an annual basis in order to carry-on business activities, they cannot make term commitments beyond one year without having the ability to terminate.

An example where the landlord might require it, is where the premises may be needed for other purposes at some future point. Perhaps the landlord needs to create a new entrance lobby into the building, and this particular area is where the plans call for it to go. In this case, the landlord would grant himself that right by way of an early termination, to ensure he can proceed with the building modification as proposed.

There is no ‘common/typical’ early termination clause (or break clause) and they all generally relate to the circumstances of the parties involved. Beyond the actual purpose of the termination being well defined – other areas to be clear on include the timing, frequency, and financial penalties which apply. Any early termination provision becomes a term of negotiation, as with all other terms within any Lease Agreement, and must be dealt with
and understood as such.

Again seek out experienced commercial realtors with strong leasing backgrounds, to assist you in working through the termination provisions in your lease. You can find out more about our Tenant Representation services here.

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