Importance of an Exit Clause

Every venture comes with its challenges, where the stakes are pretty high, and there’s no room for ambiguity or confusion. During such times, drafting a consensual agreement whose terms and conditions mutually benefit both parties has become the need of the hour. When parties willingly enter into an agreement, they bind themselves to its legalities, thereby preventing future disputes and protecting their interests. Hence, one cannot emphasize much the importance of an Exit Clause in a Real Estate agreement.?

Commercial Real Estate includes commercial properties such as office space, retail shops, industrial warehouses for storage or production activities and staff accommodation. We prefer a one-year lease that’s renewable as per the tenant’s choice in residential properties. Ideally, the lease should be long-term in commercial properties to protect both parties interests. It helps you steer clear of any discussions on the renewed Commercial Lease Terms on an annual basis at the time of renewal.

Bearing this in mind, if you decide to execute a long-term lease, it’s pertinent to consider various factors. You must carefully assess your growth strategy and vision, and evaluate the current market trend, whether it’s moving upwards or downwards. The interaction with your landlord during the initial stages speaks volumes about your relationship with them in the future. Therefore, you must carefully gauge the vibe and ascertain your requirements. Check if additional parking is easily available for staff on lease and if there are any provisions made for free or paid parking for your clients.

Once the long-term lease agreement decision is put into action, you must not turn a blind eye to the incorporation of the EXIT CLAUSE in the lease agreement. Every organization envisions growth and success in all its endeavors. While we are 100% confident about our prospects, we must also take into account an uncertain future. We’ve all witnessed the disruptions caused by the Covid 19 pandemic on a firsthand basis as various businesses took a backseat.?

I’ve come across various instances where organizations have fallen prey to the unforeseen future due to the absence of an Exit Clause in the agreement. There was one case where the organization occupying office space in a prime location decided to downsize the branch office in Dubai and was unable to terminate the lease due to the absence of an Exit Clause in the lease agreement. I’ve also come across another organization who were occupying a huge office space and decided to exit the existing location as another organization acquired it. Unfortunately, they had already signed a non-breakable lease agreement and were tied for three long years.

Another such incident that shed light on the vitality of an Exit Clause was of a restaurant/central kitchen leasing retail shop in a prime location. They did their due diligence by checking the required power load and provision for gas supply existing on the premises. Unfortunately, they didn’t realize that GPM (Gallons Per Minute) was not sufficient for them to continue their operations. They were unable to operate as well as terminate the lease agreement for not insisting on incorporating an exit clause in the lease agreement.

Therefore, in the spirit of upholding your interests, my message to all the organizations and individual business owners is to insist on incorporating an EXIT CLAUSE in the lease agreement.???

#weknowcommercialrealestate?#commercialspecialist