Paying Attention to Terminology in Default Provision
Q: I’m currently negotiating the default provision in my lease for commercial space. Are there specific words that I should use, rather than others, and why is it important to be so specific?
A: It’s crucial to choose most words in your lease carefully, but using the correct default provision language can have long-lasting effects. If you and the owner agree that giving up your space prematurely will trigger a lease default or another lease obligation, such as the payment of an early termination fee, be careful how you word the agreement in your lease. If you don’t draft your lease properly, a common error can leave you in a much worse situation than you bargained for.
If your lease states that a default or other lease obligation will be triggered if you “vacate” the premises early, you need to meet only one requirement—that is, you must actually move out—to trigger the default. So even if you plan on reopening, you could accidentally trigger a default or lease obligation. If you move out but intend to return to the space, the owner can claim—and a court may agree—that you’ve violated the terms of your lease.
To avoid this problem, draft your lease so that it states that you’ll trigger a lease default or another lease obligation only if you “abandon” your space. To abandon a space, you must meet two requirements—you must actually move out and not intend to return or continue operating your business in the space.