Building Better Leases Series – Condemnation

Building Better Leases

Condemnation refers to the acquisition of the property for any public or quasi-public purpose or for the intent of purchase by any governmental authority in lieu of the exercise of the right of eminent domain.

The Lessee may terminate the Lease if more than 10% of the Unit or more than 25% of the Premises not occupied by the building is taken by a governmental entity. In the event that the Lease is not terminated, the Rent will be reduced in proportion to the amount of usable space in the Premises that was lost from condemnation. Furthermore, the Lessor will be responsible for repairing any damage caused by the condemnation. They will get the entire condemnation award except for the compensation attributable to the Lessee’s Alterations, Utility Installations or Trade Fixtures.

Condemnation clauses appear frequently in commercial leases, especially in “disaster prone” areas near the ocean, rivers, or in earthquake zones. It’s one of the few sections that allows one of the Parties to unilaterally terminate the Lease which is important for Lessors to note. Tenants should read these clauses carefully before signing a Lease and should refer to the clauses when condemnation becomes an issue.