Real Estate News: Expectation Must Be Spelled Out in Lease

by Philip A. Toomey | Partner

Most lease transactions are preceded by a letter of intent (LOI).  While LOI’s are a great starting point, normally they are nothing more than non-enforceable statements of what “might” happen in the future. Under most circumstances, a LOI may not counter or add language to a later executed written lease. Many a tenant has discovered reasonable, material and significant expectations, clearly written in the LOI but not in the lease, are unenforceable. At a minimum, the tenant is inconvenienced. At worse, the tenant suffers material adverse financial consequences.

As an example, assume a tenant wants to lease space in a shopping center. The desire is based, in part, upon knowing a major anchor tenant intends also to open, bringing to the center customers the tenant might not otherwise attract. For leverage, the tenant may want to delay payment of rent until near the time the major anchor opens.  The tenant might also expect the anchor remain open and continue to attract customers during the tenant’s entire lease term. These are all reasonable expectations. However, if the lease does not specifically link commencement of rent to the anchor’s actual opening or continued anchor operations for the entire term lease, the tenant could end up paying rent for a very isolated and quiet operation. While the LOI might be very clear on these points, if language is absent from the lease the tenant is without remedy.

The reality is, especially in this economy, major anchors delay opening, “disappear”, or consolidate and roll-up operations.  Clearly requiring, and providing for consequences in the lease document itself, for delayed opening or interruption of anchor operations, or for any other material tenant expectations, provides the tenant with options. At the same time, not having these expectations clearly spelled out in the lease will leave the tenant without any business or legal remedy.

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