sample notice of default commercial lease

The trick with force majeure clauses is that courts tend toward extremely narrow interpretations of real estate contract language, so the argument can be an uphill climb if “acts of government” or “pandemics” or “public health crises” are not specifically stated in the contract. Though every business situation is different, the main legal argument in most cases where a business has shut down and vacated its space due to COVID-19 is a variation on the idea that government-mandated stay-at-home orders and business closures (of bars, restaurants, gyms, movie theaters, etc.) are grounds for triggering a contract’s “force majeure” clause. Negotiation is the preferred path to resolve a lease dispute, but litigation is sometimes the best - and only - option for businesses that cannot meet their lease obligations and have no other recourse. As with a sub-leasing, a landlord is much more likely to consider a buyout if another reliable tenant is lined up and ready to move in, although that could be a tall order in the COVID-19 business environment. Negotiating for a lease buyout involves persuading the landlord to buy out the remaining portion of the lease for less than they would have otherwise received, but more than they would get if the matter went to court. Under a sub-lease arrangement, the new tenant would pay the rent for the duration of the lease, though the outgoing tenant may have to pay for the time the space was vacant if the handoff to the new tenant cannot happen immediately. If the contract itself doesn’t give tenants permission to sub-lease the space to another tenant, landlords may still be open to the idea, especially if the tenant helps the landlord find a replacement tenant.

The most common exit strategies to explore are sub-leasing or a lease buyout. This language is meant as a deterrent, but when negotiating a termination agreement, keep in mind that landlords are primarily interested in how they are going to get paid, so there may be more room for compromise than the contract language suggests. Most commercial leases contain language - such as a default clause - that outlines the tenant’s responsibilities and explains what will happen if the tenant defaults on the lease or otherwise violates the rules of the agreement. Negotiating a termination agreementĪ lease-termination dispute may very well end up in court, but an attempt at negotiation can be a positive first step.

This article is based upon Practice Notes covering general and COVID-related lease termination considerations, just a few of the more than 70,000 resources available in Practical Law.

Sample notice of default commercial lease