Give Desirable Tenant Early Termination Rights for Noxious Odors

But set clear limitations.

Commercial leases typically require tenants to refrain from creating nuisances that interfere with other tenants’ use and enjoyment of their property. The problem is that “nuisance” is often in the eye of the beholder. While they might not technically constitute a nuisance under the lease, the noises, smells, vibrations, and other emanations that are normal for a particular tenant’s business might still be highly disruptive to the business of a neighboring tenant.

Reconciling these different uses and needs can create challenges for landlords, particularly in strip malls, shopping centers, and buildings in which multiple businesses share space. A seasoned New York City leasing attorney has come up with a potential solution: Give a prospective tenant with nuisance-related concerns over a neighboring tenant’s use a limited right to terminate if those fears actually come to pass while also setting clear restrictions and limitations. Here’s how to implement such a strategy along with a Model Lease Clause that you can adapt for your own situation.  

Cooking Odors from Neighboring Restaurant Spooks Prospective Tenant

The story of the lease clause began when a strip mall landlord represented by the New York City attorney received inquiries from a law firm interested in leasing space on the ground floor. The rent, location, and just about everything else about the space were ideal for the law firm’s needs. But there was one major drawback: The space was located next to an existing restaurant and the firm was worried that cooking odors from the property would disrupt its business. So, the firm made a proposition to the landlord: We’ll take the space, provided that you give us the right to terminate the lease if we find that the smells from the neighboring restaurant interfere with our legal practice.

Landlords don’t normally let tenants road test their space after they’ve leased and moved into it. But this was a desirable, trustworthy tenant, the New York City attorney recounts. And the landlord reasoned that granting the tenant a limited termination right under these circumstances wouldn’t be that risky. For one thing, the landlord knew that the law firm had done its due diligence and decided that the restaurant, as currently operated, passed the smell test. The restaurant’s lease also contained a comprehensive set of operating covenants barring it from generating offensive or objectionable odors. Moreover, the restaurant had been operating for several years and demonstrated a history of not generating foul smells or complaints. In light of these factors, the landlord was willing to give the law firm tenant a conditional right to terminate the lease. 

The 6 Key Lease Protections

The other thing that made the risk worth taking were the elaborate limitations and protections that the landlord’s attorney incorporated into the early termination clause. While designed for odors, our Model Lease Clause can be easily adapted for other potential nuisances such as noise, smoke, vibration, or pests.

1. Tenant must not be at fault. The early termination right activates only if the objectionable odors situation arises through no fault of the tenant’s. In other words, the tenant can’t terminate in response to nuisances it creates or contributes to [Clause, par. 1].

2. Tenant’s premises must be overwhelmed. To ensure that the tenant doesn’t use the odor situation as a pretext to get out of the lease, the Model Lease Clause requires that the premises be “overwhelmed by intense noxious cooking odors.” It also specifies that the source of those odors must be the neighboring restaurant [Clause, par. 1].

3. Tenant must vacate immediately. The Model Lease Clause requires the tenant to vacate immediately “as a direct consequence” of the odors. Without such language, the tenant could treat the odor situation as a “Get Out of Jail Free” card that it keeps in its back pocket for later use at a more convenient time [Clause, par. 1]. 

4. Tenant must notify and give landlord 30 days to cure. One important protection of the Model Lease Clause is ensuring the landlord a reasonable opportunity to cure the odor problem before the tenant’s early termination right kicks in. Specifically, the tenant must provide the landlord written notice that specifically describes the situation within two business days after odors from the restaurant begin emanating into its premises. The landlord then has 30 calendar days to implement “reasonable measures” to resolve the problem. Only if it fails to initiate those measures may the tenant exercise its early termination right. Notice that the Model Lease Clause doesn’t say that the landlord’s remediation measures must be effective, only that the landlord must begin to undertake them [Clause, par. 1].

5. Tenant must provide early termination notice. To exercise its early termination right, the tenant must furnish the landlord written notice within five calendar days after the 30-day cure period ends. The clause also takes money damages and other claims off the table by specifying that early termination is the tenant’s “sole and exclusive remedy” against the landlord for failing to protect the tenant from being overwhelmed by the noxious cooking odors emitted by the restaurant [Clause, par. 1]. 

6. Early termination takes effect at month’s end. Under the Model Lease Clause, early termination takes effect not immediately but rather at the end of the calendar month immediately after the landlord receives the tenant’s termination notice. This gives the landlord up to three additional weeks to begin seeking a replacement tenant for the space. Accordingly, the clause also stipulates that the tenant:

• May not use or occupy all or any part of the premises on or before the termination date;
• Must pay all rent and additional rent due under the lease accruing before the termination date; and
• Must leave the premises on the termination date in whatever condition required by the lease had the lease expired on the original expiration date [Clause, par. 2].