Managing Partner Robert M. Steeg and Partner Margaret V. Glass are co-authors of an “Attorney Analysis” real estate column for Reuters Legal News. Their article, “Practical provisions for commercial leases in light of changing times,” was published on November 18, 2022. Following is an excerpt from the article, which you can continue reading on Reuters Legal News. You can also download a PDF of the article below.
Practical Provisions for Commercial Leases in Light of Changing Times
Over the last two years, lawyers’ standard lease language was tested by natural disasters, the pandemic and drastic changes in the way people work. To adapt to changing times, attorneys should consider incorporating a variety of practical provisions into their corporate leases regarding term, base and additional rent, casualty insurance, premises rights, and force majeure.
Tenants are asking for longer terms, not shorter, to protect against market uncertainties, including inflation. But tenants are also trying to hedge their bets, remembering how Covid-19 affected their businesses.
There are a few legal tools for tenants to address this. The first is to include one or more termination options in favor of the tenant, at fixed times. The second involves kick-out provisions. These allow the tenant to terminate the lease if a casualty or government-declared health emergency results in external conditions or a governmental order that reasonably causes the tenant to be unable to conduct its business for a specified period of time.
Attorneys should consider incorporating pandemic-related and casualty-related provisions, as well as addressing the effects of inflation, in the base rent terms of a lease.
Tenants are remembering the delicate negotiations that arose during the pandemic, where landlords often allowed some combination of rent abatement, rent reduction, and rent deferral. Now, tenants are trying to negotiate clauses that build in one or more of these elements upon the occurrence of specified events in the future, such as a declared health emergency that results in a governmental order that reasonably causes the tenant to be unable to conduct its business at the leased premises.