Tenant Exit Strategies: Planning Ahead for a Way Out

When landlords and tenants negotiate a lease, particularly a retail lease, they typically have in mind a long-term relationship. The parties enter the relationship optimistically with the hope that the tenant's business will be successful at the particular location, that the entire project will be a success and that the tenant's operations will enhance the value of the property. Given the long-term nature of most retail leases, it is vital for tenants to think ahead, while at the negotiating stage, and anticipate how their business or the shopping center in which they are located may change (for better or worse) in the future. Tenants should negotiate maximum flexibility in their leases to ensure that their leases do not contain unacceptable obstacles to the tenant's ability to exit from the lease in the event circumstances change and the tenant no longer wants to remain in the lease. This need for flexibility will be tempered by the landlord's desire to retain the original tenant with which it negotiated and is comfortable. This article discusses two types of tenant exit strategies. First, those that are beneficial to the tenant ' while the tenant remains the tenant under the lease ' such as the alteration or elimination of an operating covenant. Second, those that allow the tenant to transfer its interest in the lease whether by merger, stock sale, assignment, sublease or otherwise.

16 minute read September 03, 2004 at 09:45 AM

By

Deborah Howitt Easton