Protect Yourself if Tenant's Consent Right Threatens Your Buildout Deadline

July 31, 2006

If you're building out space for a powerful tenant, you may have to agree in the lease that you'll request the tenant's consent each time you want to make changes to the construction plans—even if those changes are required for governmental approvals and permits. But giving the tenant this consent right could cause you big problems if the lease also requires you to substantially complete the buildout by a set deadline.

That could happen because of a common loophole: The lease doesn't take into account that you may be forced to stop the buildout and wait days—or even weeks—for a tenant's response to your consent requests, even though the substantial completion deadline keeps drawing near. But it's not fair for the tenant to be able to take action against you for failing to substantially complete the buildout on time because the tenant procrastinated in responding to your consent requests, says New York City attorney A. Barry Levine.

Postpone Substantial Completion Deadline

How do you protect yourself and plug this loophole? Levine suggests that you say in the lease that the substantial completion deadline will be postponed one day for each day that you must wait for the tenant's response to your consent requests. So, for example, if you want to make changes to the tenant's construction plans and are forced to wait nine days for the tenant's consent, the substantial completion deadline will likewise be postponed by nine days. This way, you'll have a better shot of finishing the buildout on time.

Calculate Actual Waiting Time

You'll need to define in the lease how the postponement or waiting period will be measured. A tenant may suggest that the period be measured from the day the tenant gets your consent request to the day it sends out its response. But don't agree to that suggestion, because that's not an accurate reflection of how long you must wait for a response, says Levine.

Instead, say in the lease that the postponement period will be measured from and including the day you send the tenant your consent request to—and including—the day you get the tenant's response, whether it's a consent or denial of consent, he advises. After all, that's the actual period during which you can't do any buildout work, notes Levine. When calculating the days, count the day you send the request as day one.

Example: The substantial completion deadline for a buildout is Aug. 15, 2006. You send your consent request to the tenant on June 13, 2006. You get the tenant's consent or denial of consent on June 22, 2006. The substantial completion deadline is postponed by 10 days, to Aug. 25, 2006, says Levine.

Practical Pointer: If the tenant denies consent to the proposed construction changes, require the tenant to specify in its response why it denied consent, says Levine. If you know the problem the tenant has with the proposed construction changes, you might be able to fix it.

Add Lease Language

To get the postponement protection, add the following language to your lease where it discusses your buildout obligations, advises Levine. Note that the first sentence of this language gives the tenant the consent right. Make sure you define “Final Plans” elsewhere in the lease.

Model Lease Language

All proposed changes to the Final Plans by Landlord shall be subject to Tenant's prior written consent, which shall not be unreasonably withheld. The Substantial Completion Deadline (as defined in Clause [insert &num;] hereof) shall be postponed by one (1) day for each day from and including the date that Landlord sends to Tenant its request for consent to such changes, to and including the date Landlord receives Tenant's written consent or denial of consent. A denial of consent by Tenant shall specify the reasons for such denial.

You can download this language from our Web site at http://www.vendomegrp.com/userlogin.aspx. CLLI0123

Practical Pointer: Postponement protection can come in handy in other situations besides building out the space. It's useful whenever the lease sets a time limit for you to do something and you need to get the tenant's consent to what you're doing, notes Levine. You'll need to revise the Model Lease Language to fit other situations.

Don't Let Tenant Postpone Deadline Indefinitely

Don't let a procrastinating tenant postpone the substantial completion deadline indefinitely, says Levine. That could happen if the tenant doesn't respond to your consent request by a set deadline. To prevent that, also have the lease say that the tenant's silence will be treated as, in legal terms, “deemed” consent, advises Levine. Otherwise, you could be left in limbo, not knowing whether the tenant consented to or rejected your request, or what course you should take with construction work, he notes.

Model Lease Language

If Landlord does not receive a written consent or denial of consent from Tenant within [insert &num;, e.g., 10] days from the date Landlord sends its request for consent to Tenant, Tenant's consent shall be deemed granted.

You can download this language from our Web site at http://www.vendomegrp.com/userlogin.aspx. CLLI0124

CLLI Source

A. Barry Levine, Esq.: 320 E. 23rd St., New York, NY 10010; (212) 477-5118; blevine2@nyc.rr.com.

Topics

Plugging Loopholes