Expert: Jim Avancena, CPM - 2/18/2009

Question
QUESTION: I have a Quiznos restaurant with a three 5 year option lease. My last 5 year option will begin Aug 2010 but I have been told by the locals in town that they have heard that the complex that the Quiznos sits on is gonna get demolished by the end of this year. Does the landlord have the right to do this even though the lease reads that I have another 5 year option?

ANSWER: Ken-

Unless your lease; especially the language related to the term extensions, includes language in the "fine print" that allows the landlord to escape his responsibility to you for option rights, the landlord must honor your option right.

You haven't passed by your notice date to the landlord to be able to exercise your last five (5) year option starting August 2010 have you?  If you missed your notice date. that would void your right to the last five (5) year option term.  What is that deadline?

I do not have a copy of your lease, so you need to have an attorney read your document to advise you if there is anything he finds in the document that allows the landlord to ignore your final option term right.

Is there any development planned by a government entity that may be planning to seize the property via "eminent domain" for something the government is compelled to build?  If the government was planning to seize the complex property to demolish it "by the end of this year" you would have known about that process long ago.  Get some more information from the "locals" so you can check out the rumor.

Quiznos is my personal favorite sub shop. Great food!

Good luck.

Jim

---------- FOLLOW-UP ----------

QUESTION: First off, I want to say thank you for your advise. There is not a deadline written in the lease to exercise my 5 year option.  Also I have been told the are going to demolish the complex and just landscape the area as an entrance to the University. If the lord offers to buy me out of the 5 year option how would he calculate a figure to do so and would I have to accept his offer?

Answer
Ken-
He doesn't have to calculate anything a certain way.  He will come up with some figure based on some plausible basis. You do not have to accept the landlord's offer; regardless of what figure is proposed. Unless eminent domain is involved, use this opportunity to buy that condo in Kapalua, Hawaii you saw on your last vacation! Trust me, your landlord would do the same to you if it could.

However, beware of some other provisions in your lease that can open the door to indirect means of your landlord getting what it wants.  You may want to have an attorney review your lease to advise you on all the potential "creative" ways the landlord can get around your refusal to take his offer.

Your landlord may try to find you "in default" of various provisions of the lease so that it can claim your default has effectively terminated your lease and you must vacate.  What am I talking about?

Does your lease require you to CONTINUOUSLY carry certain insurance policies for your store?  I am sure it does. The landlord  may ask you to provide him with copies of that continuous coverage for the last five years.  If you don't have it, and you have let certain periods lapse between policies you have been in default. Be certain that you have the CURRENT coverages as the lease specifies, exactly to the limits the lease stipulates.

Does your lease require that you provide your landlord with "audited" statements of income from you store periodically?  Have you provided all of them as required?

There are many of these type of requirements you must be watchful of in your lease.

Does you lease have any language that gives the landlord the right to make changes to the property during the lease term as "the landlord" determines are necessary?  Guess what?  Your shop may be one of those changes.

Be certain that you can prove that you exercised your notice to exercise you last lease extension option EXACTLY as the lease stipulates you must do it.  Do not let the date get past you.

I have had many clients whose landlord's claimed that they never received the notice of the exercise of the option.

Beware of any situation involving big bucks!  Landlords are a very pragmatic bunch that always believe tenants don't appreciate all the benefits their landlord provides them.   Never under-estimate how nasty your property owner can be when it comes to getting what it wants. Never.

Good luck.

-Jim