Include Early Exit Strategies in Leases to Handle Permit and Construction Delays
At the beginning of lease negotiations, landlord and tenant are typically enthusiastic about the project and are eager to move forward. Following the conclusion of a successful negotiation however, if construction of either the entire center or tenant's premises is involved, this enthusiasm can quickly turn into animosity. It is often said that construction typically takes twice as long and costs twice as much as planned, yet many parties fail to address that issue in their lease.
If the landlord is performing construction work before delivering the premises to the tenant, then the lease should clearly set forth benchmark dates by which landlord must secure permits and approvals, commence construction, and complete construction. If any of those deadlines are not met, then tenant should have the right to terminate the lease and to recover liquidated damages on account of the significant time and money spent in due diligence, permitting, tenant improvements and attorneys fees. Deadlines should be subject to extension for events beyond the control of Landlord and for delays caused by tenant or tenant's agents or contractors.
The landlord should also have a termination right if it is unable to obtain all required permits and approvals, or if the conditions attached to governmental approval render the project too expensive, or if the construction project gets bogged down in litigation with opponents of the project. The landlord should protect itself when constructing or remodeling the premises for a specific tenant to be as clear and precise as possible in the lease as to what improvements and finishes are to be used and exactly where they are to be located.
The lease should also provide tenant with the right to terminate if tenant does not receive all permits required to conduct its business within a reasonable time. This right should also include at least a 30 day extension option if tenant is close, but has not received its permits.
