What Is A Demolition Clause?

At times in my career, I receive a call from a distressed tenant. “Can you please help us find a new office space? We’re being kicked out of our building?” When I ask the tenant to clarify why or how they are being kicked out, they reply with, “The building was sold and we received a notice that we have to leave within 6 months. Is that legal?” I then ask them to review their lease or I review their lease on my own and upon reading it, I discover the tenant had signed a lease which contains a demo clause.

A demo clause is otherwise known as a demolition clause. It basically states that if the office building is sold, the landlord has the right to serve the tenant with a notice that states he must vacate his office space within a given period of time. Some landlord representative brokers choose not to mention that a certain office space contains a demo clause, only to find out from the tenant’s attorney after he has done an initial review of the lease. In that event, the tenant would have spent $500-$1000 in attorney fees, to review a lease with a major clause that he or she would never accept. Waste of money.

Since I am a tenant representative broker, I look to solely represent the tenant’s interests and I do not represent landlords. In this way, there is never a conflict of interest. In order to best protect the tenant, I often place a section in my offers that asks the landlord’s broker to be upfront in exposing whether or not the lease will contain a demo clause. This ends up saving the tenant a great deal of heartache, time and money. If the landlord’s rep confirms that there is a demo clause, I can expose it to the tenant at no additional cost and the tent is free to either walk away from the negotiation without having spent additional money or the tenant can choose to ask me to negotiate the terms of the demo clause prior to a lease being issued. Brokers do not get paid by the hour for negotiations. They only get paid when a deal is closed so being aware of the demo clause upfront early in the process and working to negotiate that time at the initial stage of the offer saves the tenant on the time an attorney would spend on negotiating the financial terms of the demo clause. Most brokers do not take this course of action.

The point of this article is to make you aware of a demo clause so that you do not make the same mistake that many tenants in the Manhattan market make every day.