Landlords will sometimes find themselves dealing with tenants who would like to add an escape clause to their lease. Perhaps this is a tenant who is renegotiating their lease, or maybe they’re just considering leasing a location for the first time.
An escape clause, quite simply, is a clause that allows a lease to be broken early. After all, many commercial leases are longer than a single 12-month period, which can be lengthy when the market is volatile. The lease for the storefront could last for a few years, and many people will sign something like a three-year lease and then reconsider it in the future.
When a contract contains an escape clause, however, it allows the tenant to break that lease early without penalty. Why would they want to insist upon this addition to their lease terms?
An unpredictable future
One potential reason is that the tenant is afraid that the location will not be ideal for their business, but they can’t predict exactly how things will work out. They are hopeful that they’ll be able to earn enough money to make the location viable. But they may say that they have to hit certain earning benchmarks or they can leave and seek a new location.
In the last few years, some alternatives to escape clauses have included simply scaling rent. If a business had to close and was only open for a certain percentage of its usual hours, rent would be changed to reflect that same percentage. But some business owners may simply want an escape clause saying that they aren’t bound to the lease at all if they aren’t allowed to be open.
What are the options for commercial landlords?
Certainly, a commercial landlord does not have to accept the use of an escape clause. Even if a tenant asks for it, a landlord who believes they will still be able to rent their space to someone else may deny that request.
That being said, there are advantages to honoring flexible lease contracts and it is important to remember that they can be designed with specific situations in mind. Those who are involved in creating these contracts need to make sure they understand all of the legal steps to take in order to protect the interests of all who are affected by their terms.
