Commercial Real Estate Leases and Subleases, Assignments, Renewal or Extension Options and Rights of First Offer or Refusal are crucially important to both property owners and buyers, and landlords and tenants. Great care must be exercised when negotiating and drafting these agreements which have far-reaching and long-lasting implications.
Commercial Real Estate Leases
Commercial real leases are vastly different from the typical residential lease. They often involve a longer lease term, thousands of square feet, personal guaranties and maintenance and other responsibilities and liabilities.
We assist clients with negotiating and enforcing commercial leases in all types of real estate including office, apartments, retail, industrial, condominiums, hotels, , short term accommodations (Airbnb, VRBO) and senior housing.
Subleases and Assignments
A sublease can be used when an existing tenant (“Sublessor”) rents a portion of, or the entire leased premises, to another tenant (“Sublessee”), typically for a limited term. This gives valuable flexibility to tenants and often is, understandably, restricted by landlords.
An assignment of a lease occurs when an existing tenant (“Assignor”) assigns its rights and obligations under the lease to a new tenant (“Assignee”). Another form of assignment occurs when a landlord sells the property and a new landlord takes over the lease.
Landlords typically prefer subleases over assignments, since sublessors remain liable to landlord, and assignments may terminate the assignor’s obligations to landlord.
Lease Renewal or Extension Options
Most landlords prefer not to include renewal or extension options in commercial leases. A tenant’s best chance to get this valuable concession is during negotiations of the lease, not during the lease term.
If landlord and tenant agree to a renewal or extension option, the following issues must be addressed:
How many renewal options will tenant have and how long will each option last?
How much notice must tenant give to exercise the option to renew?
What terms of the original lease will apply during the renewal period?
What is the rent amount during the renewal period?
What preconditions must tenant satisfy before it may exercise the option?
Right of First Offer/Right of First Refusal
A Right of First Offer (ROFO) and a Right of First Refusal (ROFR) are contractual rights that permit the purchase of property, or the lease of space, upon the occurrence of certain events, often referred to as trigger events. These rights are often negotiated along with other terms and conditions during lease negotiations.
A ROFO is commonly triggered when a landlord seeks to lease or sell property. The landlord must “first offer” to sell or lease the subject property to tenant on terms and conditions that are determined by the owner. If the tenant does not timely exercise its right to purchase or lease the property, the landlord may proceed to offer the property for sale or lease to third parties.
A ROFR is commonly triggered when a landlord receives an acceptable offer to lease or purchase from a third party. Prior to accepting the third-party offer, the landlord must allow the tenant to either lease or purchase (as applicable) the property either upon the same terms and conditions contained in the third party offer or upon terms otherwise specified in the parties’ ROFR agreement. The landlord may only proceed with selling or leasing the property to the third party if the holder of the ROFR does not timely exercise its right to purchase or lease the property.
We assist Landlords and Tenants by negotiating, drafting and enforcing Commercial Leases, Subleases and Assignments, Lease Extension and Renewal Options and Rights of First Offer and Refusal provisions.