Taking advantage of the depressed office market, as a savvy tenant you just renegotiated your office lease reducing your rent and locking in a low rent structure for the next several years. But did you close a big loop hole that could negate this great deal? If your lease is like most leases, it contains a subordination clause making your lease inferior in position to any existing or future lenders. In many states where a lease is subordinate to a mortgage and the lender forecloses on the property, the tenant is at the lender’s mercy as the lender can elect to terminate or recognize the lease. In such an event, the subordinate tenant is in a very vulnerable position as the lender has leverage to force the tenant to renegotiate the lease on the lender’s terms. To plug this loophole, a tenant should have a Nondisturbance provision in its lease and have a Nondisturbance Agreement with the existing and future lender(s). In today’s market, tenants are well advised to preserve some negotiating capital for this important issue.
Today’s office market presents unprecedented opportunities for tenants. At the same time, tenants face risks that were uncommon a few years ago related to the financial well being of landlords. With some of the biggest names in the industry struggling, savvy tenants are extending their due diligence to the financial strength of their current and prospective landlords. Unlike a real estate sales transaction where the parties go their separate ways after the transaction is finalized, tenants must keep in mind that a lease is a long term business relationship. As this business relationship in most cases is vital to the operation of a tenant’s business, tenants must thoroughly vet their landlords.