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Drafters of commercial lease agreements should beware when drafting the minimum rent clause. An option to renew an agreement can oblige the landlord to offer to renew for the original (lower) rent, although the rental market may have increased.
A lease signed in 2002 permitting the Knights of Columbus to rent 3,800 square feet of second-floor space — including a meeting area and bar/kitchenette — for the grand sum of $1 a year, may in turn prevent the sellers from selling the metropolitan centre.The idea for the “sweetheart lease” may have been a reward for the Knights’ willingness to sell. As the vendors have discovered, even rent as cheap as $1 can be valid for 100 years.
Read the article here.Take away:
- When drafting the minimum rent clause, landlords should consider whether they want to give the option of renewing the terms, including minimum rent, and the impact this may have on a future sale of the property.