Set Automatic Election or Face Uncertainty if Tenant Doesn't Make Choice

Your lease might require a tenant to make an election by a set deadline. For example, the lease might require the tenant to notify you by April 15, 2007, of whether it elects to either surrender a back area it has been using for storage or keep the back area as part of its space and pay a higher minimum rent and additional rent.

But if your lease is like many we've seen, it may also have a loophole that could result in a big battle with the tenant over this election. The loophole: The lease doesn't say what happens if the deadline passes but the tenant doesn't make its election. For instance, in the example above, what do you do if the deadline comes and goes, but the tenant doesn't make an election—and another tenant wants to use that back area? If the lease doesn't address the issue, you'll have to decide how to proceed. And depending on the circumstances, you may end up in a lengthy and costly battle with the tenant.

Provide for ‘Automatic' Election

You can plug this loophole easily by providing in the lease for an “automatic” election if the tenant doesn't make an election on its own, says Chicago attorney Ellen B. Friedler. Here's how the automatic election works: The lease says that if the tenant doesn't send its election notice by a set deadline, the tenant is automatically deemed to have elected one of the choices, she explains. This way, there's no uncertainty if the tenant doesn't make its election.

For instance, in the storage area example, the lease might have said that if the tenant doesn't send its election notice by April 15, 2007, it's deemed to have elected to surrender its back area. So if the tenant doesn't make an election by that deadline, it would be required to surrender the back area to you.

Add the following language to the lease in each place it requires the tenant to make an election, advises Friedler. (Make sure you define “Deadline” elsewhere in the lease.): CLLI0118

Model Lease Language

If Tenant fails to deliver to Landlord the election notice required by this Paragraph [insert #] on or prior to the Deadline, then Tenant shall be deemed to have elected to [insert choice].

CLLI Source

Ellen B. Friedler, Esq.: Partner, Neal, Gerber & Eisenberg LLP, 2 N. LaSalle St., Ste. 2200, Chicago, IL 60602; (312) 269-5242; efriedler@ngelaw.com.