If the parties agree to include permitting contingencies in a lease, they must clearly identify the party responsible for obtaining the permit in question, the timeframe for application, and the level of effort the party must expend in pursuing the permit. Under co-tenancy provisions, tenants are only required to open or operate if certain other tenants in the shopping center are also open and operating. These provisions protect the landlord should a tenant cease to operate, leaving a dark storefront in a shopping center that may deter shoppers. First things first, every buyer needs to … Since sales may start out slow and ramp up as the lease term progresses, parties should avoid setting a premature target period. Many commercial real estate contracts include contingencies that are based on financing approval for the buyer. Economic realities change, businesses evolve and forces outside of the parties’ control can make a productive lease relationship impracticable or impossible. While these rights and contingencies can provide flexibility to landlords and tenants if things don’t go as planned, they must also be considered in the context of the entire lease to make sure the necessary protections and clarifications are included, and to ensure they don’t render other provisions in the lease ineffective or unfair. All of these provisions are merely the tip of the iceberg. In order to protect your landlord, the clause will also say that you’ll have to pay any rent that was incurred up until the date of the application rejection. Failure to obtain such approvals could make it impossible for the parties to pursue or continue the operation they contemplated at the time of lease-signing. Often, this contingency will spell out the terms of the required financing to keep the buyer from getting locked into a deal even if financing only comes at unreasonable rates. Copyright © 2020 Hinckley, Allen & Snyder LLP. Permitting contingencies give the parties a way out of the lease if they fail to obtain necessary approvals, such as building or operational permits. Attorney Advertising. Erin M. Vanden Borre, an associate in Hinckley Allen’s real estate practice in Concord, can be reached at 603-545-6118 or evandenborre@hinckleyallen.com. An operating covenant, on the other hand, prohibits the tenant from closing its store for longer than a specified amount of time. The landlord may wish to make this termination right mutual, so a single tenant cannot linger in a mostly empty center while paying reduced rent, preventing the landlord from putting the property to different use. Zoning Contingencies in Commercial Leases. long leasehold basis, often include a clause in their lease agreements requiring owners to pay an "exit” or “transfer” fee when they wish to sell or rent out their homes. This assures the tenant it won’t be the only store operating in an otherwise empty center. The rationale is that if the tenant builds the space out, stocks goods and hires the employees needed to open the store, the landlord may be reasonably confident the tenant will continue to operate for some time. Further sources of advice and explanation are listed at the end. Recapture rights in connection with assignment or subletting. It is important to add termination rights, which allow the tenant to terminate if the space is not, or cannot be, repaired or restored within a specified amount of time, and which allow the landlord to terminate if repairing or restoring the space is economically impracticable. This assures the tenant it won’t be the only store operating in an otherwise empty center. Recapture rights in connection with assignment or subletting. For sample contingency clauses see Liquor License Contingency Clause (Restaurant Lease)Adequacy of Utilities Contingency Clause , (Restaurant Lease) (Pro-Tenant), and Paragraph 9(B)(5) in LexisNexis(R) Forms FORM 240-23.23 (granting a 60-day building permit contingency period). Assigning or subletting can be a good solution from both parties’ perspectives if the leasing dynamic or the tenants’ needs change over time. For example, a lease for an office for an accounting firm and a lease for a laundromat will probably contain very different terms. January 15, 2012 In New York, and especially in Westchester County, zoning approvals are often required for incoming tenants even when no exterior improvements are being proposed. 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