Helping Tenants Survive by Relocating or Reducing Their Space Needs: 7 Key Provisions

In this day and age, tenants are struggling to survive and are doing whatever they can to cut costs. One way of doing so is to strike a deal with their landlords to relocate to smaller, less expensive space or to reduce the size of the space they are currently leasing. Agreements to substitute or reduce space can usually be accomplished with a simple and straightforward amendment to an existing lease. While the form of such amendments may vary, their substance should basically be the same, with deal specific information added where appropriate. Here are seven key provisions that should be included in all such lease amendments.

1. Define the exact location of substituted/reduced space. The cleanest way to continue working with an existing lease is to have an amendment state that all references to whatever the parties labeled as the “Premises” in the original lease will now mean the new, substituted premises, once delivery is complete. Attach an exhibit to your amendment clearly showing the new space, cross-hatched on a floor plan, and setting forth the square footage floor area of the new space.

2. Note how the new amendment modifies lease provisions that depend on the size of the premises. Make sure that proper adjustments are made to basic and additional rent, if applicable. Be sure to check for any need to change the tenant’s pro rata share of certain charges, such as taxes, insurance or common area maintenance charges. Don’t forget changes that need to be made to extension period provisions.

3. Condition of substituted/reduced space. When negotiating this clause, a lot depends on the bargaining strength of each of the parties. The amendment should make clear who will do what work in connection with preparing the new space for occupancy, who will pay for the work, and what equipment, decorations, and furnishings will be added to the new space. Whether the tenant is reducing the size of its premises or relocating elsewhere within the property, pay attention to any requirements regarding the condition of the original space upon its surrender. Restoring the existing premises to its original condition is expensive and usually wasteful. Be sure to see what the existing lease says. This is the time to revisit that lease provision.

4. Security deposit reductions. Although the tenant may not be able to recoup big money through the return of a portion of its security deposit, every dollar counts these days. If the tenant’s total space and rent obligations are reduced, a tenant should seek return of an appropriate portion of its security deposit.

5. The timing of the change. The amendment should state that: (i) “effective” as of some date in the future; or (ii) upon satisfaction of certain conditions (e.g., upon substantial completion of the landlord’s work in the new space), the changes set forth in the lease amendment, such as rent adjustments, will take effect. Failure to do so could lead to a later lawsuit.

6. Prior defaults/prior disagreements. This may be the time to deal with issues that have been difficult to resolve in previous discussions. The parties should expressly state that there are no prior defaults under any of the lease provisions. The parties should also consider adding a clause that waives any prior claims, counterclaims or defenses, that each has against the other. If the parties have had disagreements as to the meaning of any existing lease provision, this is a good time to resolve those disagreements as well, and memorialize the resolution of such matters in writing.

7. Everything else stays the same. As with any lease amendment, make sure to include a provision that all of the terms and conditions not expressly modified by the amendment are to remain unchanged and are ratified and confirmed by the parties. This can avoid any possible misunderstanding that other items that were discussed somehow modify the lease as well.