The Dangers of Commercial Lease Demolition Clauses

Lease Demolition Clauses basically states that if a building is old and the landlord wants to demolish, redevelop or sell the building, the landlord can serve the tenant a notice that states he or she must vacate the premises within a given period of time. Many buildings are later “repurposed” i.e., changing the use from offices to residential, and the demo clause gives the landlord the flexibility to do that.

Sometimes, brokers who represent the landlord will choose not to mention the demo clause contained in the lease. The potential tenant will only find out after hiring a real estate lawyer to review the lease. At that point, the potential tenant would have wasted money on attorney fees for a lease that contains a major provision that he or she would never accept.

Tenants should also watch out for the “relocation clause.” It allows the landlord to relocate the tenant within the building under certain circumstances. lease demolition clauses and the relocation clauses can upend your business. Landlords who wish to evict or relocate their tenants can do so under these provision, often with no compensation to the tenants.

In negotiations, tenants should consider when  a landlord can exercise lease demolition clauses. Tenants should also attempt to narrowly define what the definition of “significant renovation” is and demand proof that the demolition is in fact going to occur. It is not unreasonable for Tenants to demand a substantial financial payout in the vent of the Landlord exercising lease demolition clauses.

Another provision that puts the tenant at a disadvantage is the “sale provision.” This provision allows the landlord to terminate a lease if the landlord wants to sell the building. This often requires that there be a potential buyer and a purchase agreement. Once the agreement is signed, the landlord will likely give notice to the tenant for only a short period of time. The landlord will want the eviction to be completed before the closing. At lease negotiation, a tenant with strong bargaining power working with an experienced real estate lawyer can demand that the building sale be an arms length transaction and  if the landlord chooses to exercise the right to terminate, then landlord must terminate all other tenants. This will help discourage arbitrary abuse by landlords.