Avoid Lease Termination Over Spaces Under Renovation

If the office building you own has multiple common areas and some meeting spaces that are reserved specifically for certain tenants that are usually available for use, they are likely a selling point for some tenants. But if the building is undergoing work to update and refresh those spaces while you’re negotiating leases with several tenants, you might be concerned that if the work continues past the point where they expect to be able to start using these spaces, they’ll try to terminate their leases. But there is something you can include in these leases that will protect you.

During negotiations you should protect yourself from the tenant’s argument that it’s entitled to terminate its lease—or, worse, sue you—because certain portions of its space or the common areas are not usable. One way to do this is to insist on liquidated damages when the prospective tenant asks for a remedy. It’s preferable to agree on lease terms allowing the tenant to get some form of liquidated damages to avoid a dispute if you anticipate construction work because, that way, you know exactly what your exposure will be if that happens. There won’t be any over-the-top surprise expenses that you’re unprepared for. For more protections to avoid legal ramifications arising from construction that prevents tenants from using certain spaces they are entitled to, see “Give Yourself Time to Complete Renovations without Threat of Lawsuit,” available to subscribers here.