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Bridging the Gap: Concepts Useful in Negotiating Commercial Leases
Some of the more contentious provisions in commercial leases have to do with the landlord's right to recapture the leased premises upon an assignment or sublease; relocation of the tenant to other space; co-tenancy; netting of expenses; and acceleration of rent upon a default. Often the parties will be at loggerheads over these provisions and pessimistic that their differences can be bridged. However, there are concepts that can serve to bridge the gap, and this article discusses some of them in the context of those types of lease provisions.
Recapture
The lease provision states:
Except for any assignment or sublease permitted pursuant to Section 21.4 above, in the event of (i) a proposed assignment of this Lease, or (ii) a proposed sublease in excess of fifty percent (50%) of the rentable area of the Premises (singularly or in combination with previous subleases then in effect), Landlord shall have the right, by notice to Tenant delivered within ten (10) business days after Landlord's receipt of Tenant's Proposal Notice (and in lieu of the granting or denial of consent provided for above), to terminate this Lease as to all of the Premises (in the event of an assignment) or as to the proposed subleased portion of the Premises only (in the event of a sublease), in each case for the balance of the Term.
However, the tenant may be a defense contractor entering into a 10-year lease and needing to have the flexibility to sublet space at times during the Term to meet the ebb and flow of contract awards. The 50% threshold is of no help, and the landlord is not willing to limit its recapture rights to assignments or subleases for the remainder of the lease term. What to do? One answer: nullification, as in the following provision:
Notwithstanding the foregoing provisions of this subparagraph to the contrary, if within three (3) business days following delivery of Landlord's notice of termination, Tenant advises Landlord in writing that Tenant nullifies in all respects Tenant's proposed assignment or subletting, as the case may be, then Landlord's notice of termination will be deemed rescinded and the Lease will continue in full force and effect with respect to the entire Premises.
Thus, nullification gives the tenant a chance for a free look at whether the Landlord is going to recapture or not and then, if Landlord does seek to recapture, the opportunity to make the hard decision of whether it is better to hold the space fallow or lose it entirely.
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