Matthew Whitehead's Know the Law: Negotiating a desirable commercial real estate lease
Q: My company would like to lease commercial real estate, but I am afraid that the owner has plans to sell the property before the lease expires. What can I do to protect my interest in the property from being sold to an undesirable new landlord?
A. Ideally, the landlord will agree to include a blanket ROFR/ROFO entitling you to meet a bona fide offer on any proposed sale of its property — even if the transfer includes more than the specific portion that you are renting. Since this gives you the right to purchase any stake in the underlying real estate put up for sale by the owner, it best preserves your future interest in purchasing any or all of the landlord’s real estate over potentially unwelcome new landlords.
Often times, the lease will narrow the scope of your ROFR/ROFO by limiting its reach to the four corners of your leased premises — meaning you will only be able to purchase your specific leased portion of the property. Yet another creative compromise on the ROFR/ROFO is to limit it to situations where the target purchaser is engaged in the same business as the tenant — thereby giving you the ability to prevent a competitor from purchasing your leased premises, while simultaneously preserving the landlord’s right to sell its property unencumbered to buyers in other businesses.
Other times, the lease will carve out a narrower exception to the ROFR/ROFO, making it inapplicable to certain third party transfers contemplated by the landlord. In these cases, only the named third parties can purchase the property without giving the tenant an opportunity to match an offer.
Regardless of whether your lease includes a ROFR/ROFO, you should be sure to record notice of your leasehold interest at the appropriate Registry of Deeds, entitling you to the continued use of the leased premises even if a third party purchases the property from the owner.
Matthew Whitehead can be reached at email@example.com.
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