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Effects Of Missed Deadlines

A typical lease contains many deadlines. Each party to the lease should attempt to anticipate the consequences in case the other party fails to meet its deadlines. If the deadlines are important and the probable consequences can be mutually agreed upon, the results of a failure to meet a deadline should be negotiated and expressly set forth in the lease. This column provides some examples.

Landlord's failure to deliver the premises: If failure to deliver the premises by an agreed-upon date arises because the existing tenant is holding over or because of something else beyond the landlord's reasonable control, leases frequently state that relevant dates (including the rent commencement date) are postponed but that the landlord is not otherwise liable. If prompt availability of the premises is important to the tenant, it should seek to obtain the right to: (a) terminate the lease if the premises are not delivered by an outside date; (b) occupy, on a temporary basis, other designated premises in the shopping center; and (c) require the landlord to diligently pursue commercially reasonable eviction actions against the hold-over tenant.

Landlord's failure to complete improvements to the premises: If the tenant's obligations are triggered by substantial completion of the landlord's work, the lease should set forth the scope of the landlord's work and the procedure to be followed if it is not substantially completed by the agreed-upon date. The tenant is frequently obligated to deliver a punch list of missing items within a designated time period. If the missing items do not adversely affect the tenant's construction or occupancy, the tenant's obligations may not be affected. However, the landlord should remain obligated to complete the work by an agreed-upon date or pursuant to an agreed-upon standard of diligence. A dispute over these matters might be amenable to alternative dispute-resolution techniques.

Tenant's failure to exercise its option to extend: Many leases provide that the option to extend is lost if the tenant fails to comply strictly with the notice requirements and that any waiver of such requirements must be in writing. Landlords need to know if the tenant is exercising its option in advance of the term's expiration so they can market the space. Tenants with strong bargaining positions can sometimes successfully argue that the option should not be lost unless the tenant fails to exercise it within 30 days after the landlord sends a reminder notice. The rationale is that the consequences to the tenant of forgetting the exercise date could be disastrous, but if the landlord forgets the date, it can still give the reminder notice whenever the issue becomes important.

Failure to Respond to Approval Requests: It is very frustrating for a party to a lease to submit plans or make another request for approval and be greeted by deafening silence. Frustration only increases if the other party is a bureaucratic institution that is understaffed or focused on other transactions. Each approval provision in the lease should set forth the time by which a response is required and the consequences of failing to respond. (It is easier to handle this in the "boilerplate" and provide that the general provision applies unless there is an express statement to the contrary in any specific approval provision.) Parties with equal bargaining power often agree that the other party should not be liable for its failure to respond, but that failing to respond to a properly addressed and delivered written request is deemed an approval. Sometimes this result is conditioned upon a requirement that the request for approval contain an express reference to the deemed approval provision.

Force Majeure: Permissible delays should exclude matters within the reasonable control of, and matters reasonably foreseeable by, the party seeking the benefit of the force majeure provision. For example, permissible delays in the governmental approval process should exclude the customary waiting time in the applicable jurisdiction, and permissible delays in obtaining materials should exclude a foreseeably long lead time, e.g., imported materials.

Hold Overs: Leases that provide for a higher hold-over rent should also state that such increased rent is not intended to reduce the landlord's rights and remedies in the event the landlord does not consent to the hold-over. The parties may also wish to specify whether a tenant who knows that the landlord has leased, or is negotiating to lease, the premises to another tenant but nevertheless fails to vacate the premises at the expiration of the term is liable for consequential damages, including lost rent.

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