Keeping commercial properties saleable at all times

Keeping commercial properties saleable at all times

Keep commercial real estate saleable at all times? Even if it is subject to a 9-year commercial lease? You can: as long as you provide the right clauses.

In the complex world of commercial real estate transactions, drafting a good commercial lease is vital. One of the key provisions landlords should consider is the eviction clause (also called the eviction clause). This clause especially comes into its own when the leased property is sold to a new landlord.

An Eviction Clause: what the heck is that?

When commercial properties are sold, not only the physical property is transferred, but also the ongoing obligations, as included in the leases. In principle, the new owner must respect the current lease, as well as the rights and obligations assumed by the previous landlord.

An eviction clause gives the buyer (in his capacity as new landlord) the right to terminate the current commercial lease early as well as evict the tenant from the premises under specific circumstances. Thus, the landlord does not necessarily have to wait until the lease renewal application to terminate the lease. Eviction clauses can also clearly define the circumstances under which the tenant is entitled to an eviction indemnity and, if applicable, the maximum amount. In the context of real estate transfers, this clause is thus an essential tool to safeguard the interests of both the seller and the buyer.

Without a clear eviction clause, the new owner would be bound by the existing lease terms, with all the potential risks that would entail. A commercial property encumbered by a commercial lease is de facto less freely transferable.

Sample scenarios in which an eviction clause adds value.

An eviction clause offers tangible benefits when transferring commercial property:

1. Early termination: The ability to terminate the lease at the time of transfer, allowing the new owner to start with a clean slate and/or operate the property themselves.
2. Bargaining opportunities: The inclusion of an eviction clause can be the basis for negotiations between the seller and buyer. After all, a property subject to a commercial lease in which there is an eviction clause may be more interesting to a buyer than a property in which there is no such clause.

The other side of the coin for the trade tenant.

The attentive commercial tenant is less inclined to such clause. After all, a valid eviction clause makes the commercial lease terminable sooner than expected. Investments thus risk being lost (in part). As a tenant you can mitigate this risk by negotiating the eviction compensation if such premature termination occurs and/or you can negotiate to counter the eviction clause by providing for a right of first refusal on the part of the tenant in case the owner wants to sell the property.

In a dynamic real estate market, a clear and valid eviction clause is important. It minimizes potential risks, ensures a smooth transition of ownership and creates a balanced framework for all parties involved.

Do you have questions about this complex matter? Our experts are here for you. Contact us via info@bannister.be or by calling 03 369 28 00