A commercial lease is an affordable and relatively fast way for a new or growing business to secure commercial facilities. Purchasing commercial real estate is a massive investment. Simply trying to obtain financing can prove to be a major challenge.
A lease, on the other hand, may only require a few days to negotiate. The trade-off for that convenience is unfortunately often long-term financial obligations. Some commercial leases last for up to a decade. A company could pay millions of dollars in rent before the lease ends. Those negotiating a new lease or preparing to renew an existing one may want to propose a specific clause that could reduce a company’s burden in unusual and challenging circumstances.
Companies don’t always fully control their own operations
Whether a company succeeds or fails depends as much on the market as it does on the company’s leadership. The collapse of an established supply chain, acts of war, terrorist activity and natural disasters are all circumstances that companies cannot control or prevent.
They are also all circumstances that could cause extreme consequences for a previously successful organization. If a company fails due to poor business practices, only careful negotiations with the landlord can eliminate future rental obligations. However, when factors outside of the company’s control cause a disruption in operations, certain lease inclusions could help eliminate future financial obligations.
A force majeure clause is a useful inclusion in a long-term commercial lease. Some people refer to it as an “act of God” clause. The original French phrase technically translates to mean the greater force. Circumstances outside of the control of a company’s leadership could trigger a force majeure clause in a lease. When extreme and unpredictable events prevent a company from meeting its obligations or operating profitably, it may be able to cancel the lease or use the clause as leverage to renegotiate terms with the landlord.
The clause could potentially offer similar protections to the landlord if unforeseeable and uncontrollable circumstances prevent them from continuing to offer the space or providing key amenities to tenants. Given that force majeure clauses can easily benefit both parties, landlords may sometimes agree to add them to a commercial lease.
With the right contractual protections and advocacy, organizations can sometimes reduce or eliminate specific financial obligations that could otherwise push the business toward insolvency. Integrating thoughtful terms into commercial leases and other business contracts might prove crucial for the protection of organizations and the executives that operate them.