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Wins & Insights

Tenant Leasing Illustrated – Sept 2017 – Lease vs. Shark

Lease Vs. Shark

My son Adam is in law school, showing that he clearly does not learn from the experience of others.

In his first year, he tried out for the moot court competition by a process that involved articulating one side of an argument selected by the student before a panel of three judges peppering him with questions in a manner similar to an appellate court.

Most students selected one side of some mind expanding historical court case, but Adam, using his genetically endowed strong intellectual bent, picked a battle between a great white shark and a grizzly bear (arguing as befits a budding lawyer, as counsel for the shark).

As evidence of the current state of higher education, Adam was nevertheless selected for the moot court board.

You see, the panel of judges were outmatched. Adam and his goofball college friend Josh spent many an hour in varying states of sobriety covering all angles of this question so Adam was ready for anything the panel could throw at him.

He knew the relative heights, weights and speeds of the combatants. The judges asked about biting capacity and Adam knew the teeth size of the protagonists. How can this battle occur when one lives in water and one on land? Naturally, the battle takes place in a neutral fictional medium.

All quite outlandish and then I saw that Olympic swimmer Michael Phelps promoted the Discovery Channel’s shark week by racing a fictional great white shark in a 100 meter race.

The grizzly bear was not available for comment.

What a publicity stunt! One could even bet on the outcome with an online bookmaker (not much left to chance; as one reporter noted, how could the shark lose unless maybe it stayed out the night before with Ryan Lochte).

Not to break the suspense, but the shark won.

Although rare, sometimes in a commercial lease a landlord will look to take a shark-size bite out of a tenant’s space.

We recently represented a tenant in a lease where the landlord wanted access to, and an ability to take a portion of, the tenant’s premises for “infrastructure expansion”, without giving any real details about its intentions.

This type of landlord request is more common in buildings with smaller tenants without much leverage (or as in our particular case, in a neighborhood that has undergone significant changes with greatly increased rents in a relatively short period of time, while the sophistication of the leases has not caught up to what tenants expect at that price).

Yet, we have also seen in business center districts with very sophisticated public companies similar, but much more detailed, provisions governing a specific landlord need to recapture some of the tenant’s premises, often as part of a tenant “ask”, such as a reduction of the tenant’s footprint.

In one instance, the tenant requested the right to give back one or two of its lower floors in a building where it had a large presence. The landlord agreed but requested the right to take back some of the space on the tenant’s adjacent floor so that the landlord could, if necessary, put in an additional elevator to attract a retail tenant or to put in place a “building-in-building” office concept with separate elevators.

Protect yourself from a landlord who senses blood in the water when demanding the ability to take back some of your premises by following the following ten suggestions:

  • First, resist. This is an unusual request and, if not part of your own request for some other benefit, should be strongly resisted. You will need to do your due diligence to determine if your landlord has a specific infrastructure project in mind since such a project would be extremely disruptive and should not be included “just in case”.
  • Require proper timing. You should be entitled to adequate notice of the commencement of the project and the required access. You may also want a “blackout period”, covering either particular portions of the term (e.g., not in the first or last few years) or certain times of the year (e.g., excluding a busy season for your business).
  • Specify the recaptured premises. The affected area should not be left to interpretation. You will want to be sure that the deletion of the recaptured space does not unduly disturb your space plan. Provide aggregate square footage, dimensions, a specified location and if possible add a schedule to your lease depicting the area.
  • Define Landlord’s access. Your landlord’s access should be limited to the recaptured premises or some other defined area needed to perform its work. You may also want the right to have a tenant representative present during such access.
  • Require no adverse interference. Your landlord should use all commercially reasonable efforts to minimize interference with the conduct of your business, including limiting noise, odors and vibration. You may want to require that the work (or at least the more disruptive portions) be performed after business hours. The balance of your premises should be protected with sheet rock or plastic sheeting partitions and, at the end of each day, all rubbish and debris caused by the work should be removed.
  • Specify Landlord’s work. This type of landlord right should not be granted unless for a specific and necessary situation (e.g., a particular infrastructure project such as installation of an additional elevator shaft). You might also require that you be entitled to approve the plans for such work (your approval not to be unreasonably withheld if such work does not adversely affect your business).
  • Revise Lease provisions. You should not forget to amend your lease to reduce your rentable area, fixed rent and proportionate share of escalations so that it is clear that you have no further responsibilities with respect to the recaptured premises.
  • Require compliance with laws. Your landlord should covenant that your remaining premises will be legally demised and code compliant once separated from the recaptured premises.
  • Include Landlord protection and indemnity. Your landlord should covenant to repair any damage caused by such work, restore the space to its original condition and be responsible for the acts and omissions of its employees and contractors (including indemnifying you from any third-party claims related to the performance of such work).
  • Use expedited arbitration. To the extent not already included in your lease, provide for quick resolution of disputes through expedited arbitration.

Perhaps the dumbest animal battle comparison (before Adam went back in the water) involved Will Farrell and Mark Wahlberg (neither in law school) discussing an altercation between a lion and a tuna (don’t they come in cans?) in the movie, The Other Guys. But as we know, court, moot or otherwise, can bring out the dumb in all of us. Follow the suggestions above and you will be better protected if required to give back space to your land(lord)-based predators.