Entering into a long-term lease is a major commitment for any landlord and tenant. And, to a certain degree, it is a gamble. The tenant is taking a calculated risk that the space will meet its needs during the entire length of the lease term.
In many instances, the tenant will find that it has outgrown the space or that it has more space than it needs. As part of its real estate strategy, the tenant must attempt to anticipate growth in its business by negotiating any or all of the following options: expansion option(s), right of first offer, and/or right of first refusal. The tenant should also attempt to anticipate a decline in its business by negotiating a contraction option and/or an early termination option. Unfortunately, many start-ups and small companies lack the necessary muscle to negotiate a contraction option or an early termination option in their leasethe types of provisions that would seem to be most beneficial to such a tenant. However, a contraction option and an early termination option are not the only two routes available to the tenant that has planned for an exit strategy as part of its overall business plan. By carefully negotiating the assignment and subletting clause in its lease, the tenant has an exit strategy that will permit the tenant to mitigate its losses when the space no longer fulfills its needs.1
