Law.com Subscribers SAVE 30%
Call 855-808-4530 or email [email protected] to receive your discount on a new subscription.
The Exit Strategy
When a tenant enters into a long-term lease obligation, all of the thoughts and questions are generally positive: “How much money will I make?” “How will I expand my business?” “How will I add new employees to my business?” However, equally as important are questions that are slightly more negative, such as, “Will I be able to terminate the lease if my sales are less than expected?” “Will I be able to assign this lease to another entity if I want to sell my business?” “Will I be able to terminate the lease if there is a casualty, including a fire, in the premises or retail facilities near the end of the term, so that I will not need to rebuild the premises following such casualty?” This article addresses different ways that these types of questions and issues can be addressed by tenants in order to create “exit strategies” for their lease obligations.
The Failing Business
Since most lease obligations for tenants entail long-term obligations, a tenant should consider negotiating a provision that would allow it to terminate the lease in the event a certain level of sales was not achieved. While landlords often resist providing early termination options in the lease, most notably because: 1) the value of the lease is based upon the certain term and lenders will devalue or completely eliminate from consideration a term that exists beyond an early termination right; 2) if the landlord is investing funds in the construction of the premises, it wants a sufficient amount of time to amortize its contribution; and 3) the belief that the landlord has little control over the sales that the tenant would be able to achieve. Notwithstanding the foregoing, landlords may consider incorporating an early termination right in the lease if: 1) the early termination right is negotiated up front as part of the business terms negotiation; 2) the termination rights are clearly established with protections for the landlord if the tenant fails to operate in accordance with the terms of the lease; and 3) the landlord is made whole for contributions that the landlord may have made to the construction of the premises and in brokerage commissions for the obtainment of the tenancy. A typical provision that may be negotiated would read as follows:
Provided that the tenant is not in default of the lease beyond any applicable notice and cure period, and provided that tenant has continuously and uninterruptedly operated the Premises for business during the Measuring Period (as hereinafter defined), then if Tenant fails to achieve One Million Five Hundred Thousand and 00/100 Dollars ($1,500,000.00) (“Sales Limit”) in Gross Sales during the period from the thirty-seventh (37th) full calendar month of the Term through the forty-eighth (48th) full calendar month during the Term (the “Measuring Period”), Tenant shall have the right to terminate the Lease upon one hundred eighty (180) days written notice to Landlord, provided that any such notice shall be provided within sixty (60) days after the last day of the Measuring Period. Tenant shall continue to operate its business in the Premises through the termination date and Tenant shall surrender the Premises to Landlord in the condition required by the terms of the Lease as of the termination date. If Tenant terminates the Lease, as provided herein, Tenant shall reimburse Landlord on or before the termination date, for the unamortized portion of the Tenant Allowance provided by Landlord to Tenant for the construction of the Premises, as well as the unamortized portion of the brokerage commissions paid by Landlord in connection with this Lease. For purposes of calculating the amortization period, the amortization shall be made over the entire Term of the Lease and shall be amortized through the termination date.
This premium content is locked for Entertainment Law & Finance subscribers only
ENJOY UNLIMITED ACCESS TO THE SINGLE SOURCE OF OBJECTIVE LEGAL ANALYSIS, PRACTICAL INSIGHTS, AND NEWS IN ENTERTAINMENT LAW.
- Stay current on the latest information, rulings, regulations, and trends
- Includes practical, must-have information on copyrights, royalties, AI, and more
- Tap into expert guidance from top entertainment lawyers and experts
Already a have an account? Sign In Now Log In Now
For enterprise-wide or corporate acess, please contact Customer Service at [email protected] or 877-256-2473
Major Differences In UK, U.S. Copyright Laws
This article highlights how copyright law in the United Kingdom differs from U.S. copyright law, and points out differences that may be crucial to entertainment and media businesses familiar with U.S law that are interested in operating in the United Kingdom or under UK law. The article also briefly addresses contrasts in UK and U.S. trademark law.
The Article 8 Opt In
The Article 8 opt-in election adds an additional layer of complexity to the already labyrinthine rules governing perfection of security interests under the UCC. A lender that is unaware of the nuances created by the opt in (may find its security interest vulnerable to being primed by another party that has taken steps to perfect in a superior manner under the circumstances.
Strategy vs. Tactics: Two Sides of a Difficult Coin
With each successive large-scale cyber attack, it is slowly becoming clear that ransomware attacks are targeting the critical infrastructure of the most powerful country on the planet. Understanding the strategy, and tactics of our opponents, as well as the strategy and the tactics we implement as a response are vital to victory.
Removing Restrictive Covenants In New York
In Rockwell v. Despart, the New York Supreme Court, Third Department, recently revisited a recurring question: When may a landowner seek judicial removal of a covenant restricting use of her land?
Legal Possession: What Does It Mean?
Possession of real property is a matter of physical fact. Having the right or legal entitlement to possession is not "possession," possession is "the fact of having or holding property in one's power." That power means having physical dominion and control over the property.