The commercial real estate landscape is witnessing a significant shift, with a surge in the buying and selling of commercial buildings. This trend is creating a unique challenge for gym owners who lease their spaces. Many are finding themselves at a crossroads when new building owners take over, leading to unexpected changes in lease terms and rent demands. In this blog post, we’ll explore how an attornment clause in your lease can play a crucial role in these scenarios and provide strategies to safeguard your gym business.
The Rising Challenge for Gym Owners:
In recent times, large commercial buyers have been actively acquiring properties, including those housing fitness centers. Post-purchase, some of these new owners are not maintaining transparent communication with existing tenants like gym owners. The real issue surfaces as lease terms approach their end, with landlords proposing substantial rent hikes, potentially jeopardizing the financial stability of these gyms.
Understanding the Attornment Clause:
An attornment clause is a key element in a commercial lease that becomes particularly relevant when a property is sold. This clause ensures that the tenant, in this case, the gym owner, agrees to recognize the new property owner as their landlord and continue honoring the existing lease terms. The inclusion of this clause provides a degree of certainty in the landlord-tenant relationship, even amid ownership changes.
Attornment Clause in Action:
When a building is sold, an attornment clause ensures that your gym’s lease and its terms remain intact and enforceable with the new owner. This can include the agreed-upon rent, lease duration, and other critical terms. However, it does not automatically cap future rent increases or guarantee renewal terms once the current lease expires. This is where gym owners are running into issues. Generically written attornment clauses simply state that it is the gym owners responsibility to continue to pay the rent to the new building owner. It does not guarantee that the new building owner has to honor automatic lease extensions.
Proactive Measures for Gym Owners:
- Review Your Lease: If your building is being sold, review your lease for an attornment clause. Understanding its implications is essential in knowing where you stand.
- Negotiate a Non-Disturbance Agreement: This agreement complements the attornment clause by ensuring that the new owner will not disrupt your tenancy as long as you comply with the lease. This may also present an opportunity to lock the new building owner into the current lease. This gives the gym owner a second shot at adjusting a generic attornment clause.
- Open Communication Channels: Proactively reach out to the new owners to establish a line of communication. Understanding their long-term plans can give you insight into future lease negotiations.
- Seek Legal Counsel: Consult with an attorney or legal consultant like us to understand your rights and options, especially if your lease lacks an attornment clause or if you’re concerned about potential rent hikes.
- Plan for Lease Renewal Early: Begin discussions about lease renewal well in advance. If you foresee untenable rent increases, it may be prudent to start looking for alternative locations. Most leases with automatic renewal clauses require gym owners to notify the landlord of their desire to extend the lease. Start this process at the start of your final year of your current term.
- Build a Contingency Fund: Financial prudence dictates preparing for potential rent increases. A contingency fund can provide a buffer to accommodate such changes. This can also help if we need to start negotiations to break your lease in the future.
The current commercial real estate dynamics require gym owners to be vigilant and proactive. Understanding the role of an attornment clause and taking strategic actions can make a significant difference in navigating these changes. Remember, safeguarding your business begins with being informed and prepared for contractual and market shifts.