It is certainly no surprise that the commercial real estate leasing market has turned into a "tenant favorable" market.  How long this will last is anyone’s guess.  Give the current leasing market conditions and overall economic conditions tenants should take precautions to prevent becoming victims of their landlord’s potential financial defaults and inability to obtain credit.  

  1. Build-Out Allowances:  Tenant’s should request that build-out allowances are placed in an "escrow" or are secured by a "letter of credit" to make certain that funds exist when the tenant’s or the landlord’s contractors have completed their work and are requesting to draw upon the same.  Alternatively, any unfunded build-out allowances could be reimbursed to a tenant through a right of "set-off" against future rents;
  2. Building Services:  Tenant’s should request "self-help" rights in the event the landlord can no longer provide building services as contracted for in the lease agreement.  Services such as maintenance, repairs, janitorial, HVAC and utility services that are interupted can have a negative affect on tenants ability to operate their businesses.  Set-off rights against future rents can enable a tenant to keep services on going;
  3. Non-Disturbance:  Lenders want to keep the property occupied and tenants want to remain in their space undisturbed when the landlord is dealing with their lender issues.  Tenants should request that the landlord’s lender enter into a "non-disturbance agreement" to permit the tenant to continue to occupy the premises even if the lender steps into the shoes of the landlord.  Tenants should expect that the lender will request that the tenant "subordinate" to the lender’s interests in the premises;
  4. Subleasing:  Subtenants should request the right to deal directly with the landlord in the event the tenant (sublandlord) defaults on the underlying lease.  

Stability of the project is at the core of ensuring that the interests of the landlord, tenant and lender are balanced.  Today issues we once considered remote can arise and should be contemplated and discussed before the shoe is on the other foot !