Forfeiture for bankruptcy in long leases

[Neil M]

Can somebody tell me if the standard forfeiture clause for forfeiture in the case of bankruptcy is appropriate in long leases of commercial property? Being unfamiliar with long leases at a premium I have put this clause in but have had it queried. The Tenant's solicitor has suggested a pro-rata refund of the premium in the event of bankruptancy but after looking at it I wonder whether the clause is appropriate at all in these leases. Surely if the Tenant became bankrupt the Trustees in Bankruptcy should be entitled to this asset and assign the lease for the best price possible. If the bankruptcy occurs soon after completion of the lease then the landlord would receive both the premium and then the property back, which seems absurd.

Am I on the right lines here? Any thoughts would be appreciated.

Cheers

Neil

[SteveP]

The terms of a commercial lease are completely negotiable. From a landlords point of view it is entirely appropriate to agree what happens in the event of a tenants bankruptcy, after all the tenant is no longer able to pay the rent or settle any dilapidations claim once bankrupt.

The difficulty for a tenant is simple really, and if you put yourself in the landlords shoes (always a good idea when you negotiate anything to try to see it from the other persons viewpoint) quite obvious. If the tenant is concerned about early bankruptcy he presents a high risk, a sensible landlord will either not want that tenant or will expect additional reward for taking on that risk (higher rent, a higher premuim, or both). From a tenants point of view if he has concerns about bankruptcy then he ought to consider seriously whether taking on a long lease is a good idea.

In essence both parties need to think about what is best for them and whether the deal provides what they want. Leases, like all contracts, just apportion risk between the parties. If you want a landlord to take on more risk you must expect to pay him more.