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COVID-19 and Lease Negotiations: Early Termination Provisions
"Contracts are like hearts, they're made to be broken," says a smirking Michael Keaton, playing Ray Kroc in the movie The Founder. As many tenants discovered during the COVID-19 pandemic, this philosophy is not true of commercial leases. Unless the lease specifically gives the tenant a right to terminate, the tenant cannot simply walk away from its lease without risking substantial liability.
During the pandemic, some tenants were able to negotiate termination agreements with their landlords. But even though a landlord may agree to terminate a lease to regain control of a defaulting tenant's space without costly and lengthy litigation, typically a defaulting tenant that otherwise has no contractual right to terminate its lease will be in a much weaker bargaining position with respect to the conditions for termination (which often include a hefty fee).
The challenges and uncertainties faced by many commercial tenants during the pandemic have led parties to spend more time and attention on lease provisions relating to termination. This article (the third in a three-part series; see Part One on casualty provisions in the November 2021 issue of CLLS at , and Part 2 on tenant security in the December 2021 issue) examines two types of termination provisions that have received particular attention in recent months: co-tenancy and gross sales "kick-out" provisions.
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