Agreements for lease with development obligations—termination for default
Agreements for lease with development obligations—termination for default

The following Property guidance note provides comprehensive and up to date legal information covering:

  • Agreements for lease with development obligations—termination for default
  • Developer default
  • Tenant default
  • No right to terminate for own breach

Developer default

Granting a tenant the right to terminate the agreement for lease in the event of default by the developer has potentially disastrous consequences for the developer in terms of the overall viability of the development scheme. If prospective tenants can walk away, then the prospective buyer may do likewise, or it may substantially reduce the price that it is willing to pay, or the developer may be forced to make good the lost rental on the void units for a fixed period if it is to induce the buyer to go ahead at the agreed price.

The developer will therefore seek to persuade the tenant that it is sufficiently protected by provisions in the agreement for lease as to:

  1. extensions of time (with consequential postponement of the rent commencement date)

  1. liquidated and ascertained damages

  1. rectification of defects

taken together with the package of collateral warranties, third party rights nominations and contract assignments which will be delivered to the tenant on practical completion (although rarely is the complete package actually supplied on that date).

For the tenant, the major concerns with any development project are that:

  1. the developer (which is unlikely to be of any substance) may become insolvent at some time before the works are complete, or

  1. the works are not completed by the estimated target

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