Don't Get Left on Hook for Space After Changed Circumstances

Don't Get Left on Hook for Space After Changed Circumstances

If you’re considering leasing space on the first floor of a mixed-use building that includes residential units, you might be concerned that if zoning laws change, you won’t be able to operate your business, but will still be on the hook for a multi-year lease. Owners typically protect their interests in such a situation with a specific provision. But you can negotiate a lease termination if you can no longer use the space.

Be Aware of ‘Partial Invalidity’

A potentially problematic boilerplate clause that’s often overlooked by tenants is a “partial invalidity” clause. This type of clause says that if a court invalidates any provision of the lease, the rest of the lease still remains in effect. That means that, if something happens that prevents you from using the space as you intended—that is, according to the uses stated in the lease’s use clause—there’s nothing stopping the owner from forcing you to still meet all your lease obligations. In your situation, suppose you sign the lease for retail space on the first floor of the residential building, but a change to the zoning laws later bars retail stores from operating in the building. Under the typical partial invalidity clause, even though your use clause is invalid, you’d still have to pay rent and perform your other lease obligations. You can avoid this situation, however—if you get the option to terminate the lease in that event.

Terminate If Intended Use Is Over

Negotiate with the owner to get the option to terminate the lease if you can no longer use the space in the way that you intended. Why shouldn’t you just ask for an automatic termination if a zoning change bars your intended lease? Because it may turn out that you don’t want the lease to terminate after all. If zoning laws prohibit only one type of business, but you can still conduct another business at the space that’s lucrative, you’ll want to keep operating. (Keep in mind that you may need to get the owner’s approval before changing to that new business.)

Most owners probably won’t mind granting you an option to terminate if you can’t use the space as intended. But a savvy owner may want to limit this termination option by demanding that you make your decision to terminate by a certain deadline or lose your right to terminate the lease. If this happens, make sure that you give yourself enough time to make an informed decision.

To solidify this agreement for a termination option, ask your attorney about adding the following language to your partial invalidity clause:

Model Lease Language

Notwithstanding any provisions herein to the contrary, if the provisions of this Lease relating to the Tenant’s stated use of the Premises shall be determined by any governmental agency having jurisdiction to be invalid or unenforceable, Tenant shall have the right to terminate this Lease, provided that Tenant sends Landlord written notice of such termination within [insert #, e.g., 45] days after learning of such determination. Upon receipt of such written notice of termination by Landlord, this Lease shall be deemed to be void and of no further force or effect and Tenant shall have no further obligations hereunder.