Legal Definitions - most-favored-tenant clause

Most-Favored-Tenant Clause

A most-favored-tenant clause is a specific provision often included in commercial lease agreements. It serves as a guarantee to the tenant that they will receive the benefit of any more favorable terms, concessions, or incentives that the landlord later grants to another tenant within the same property or development.

Essentially, this clause ensures that the tenant with this provision in their lease is always getting one of the best deals available. It prevents a landlord from offering significantly better incentives to new tenants without extending similar benefits to existing tenants who have this clause.

• Example 1: Rent Reduction

  Imagine a small bookstore, "The Literary Nook," signs a five-year lease for space in a bustling shopping center. Their lease includes a most-favored-tenant clause. Two years later, the landlord is struggling to fill a larger, vacant unit and offers a new art gallery tenant a significantly lower rent per square foot to entice them to sign a lease. Because "The Literary Nook" has a most-favored-tenant clause, they can demand that their own rent be reduced to match the lower per-square-foot rate offered to the art gallery, ensuring they benefit from the landlord's more aggressive new tenant incentives.

• Example 2: Tenant Improvement Allowance

  A marketing agency, "Creative Sparks," leases office space in a new high-rise building, including a most-favored-tenant clause. A year into their lease, the building management is keen to attract a prestigious law firm to a larger, upper-floor suite. To secure the law firm, the landlord offers them a very generous tenant improvement allowance – a substantial sum of money to customize their office space with high-end finishes and bespoke furniture. "Creative Sparks" can then invoke their most-favored-tenant clause to receive a similar increase in their own tenant improvement allowance, which they could use for future office upgrades or renovations, even if they've already utilized their initial allowance.

• Example 3: Free Rent Period

  Consider a popular café, "Morning Brew," which has a ten-year lease in a mixed-use development, complete with a most-favored-tenant clause. Five years into "Morning Brew's" lease, the landlord is trying to fill a large anchor space that has been vacant for months. To attract a major grocery store chain, the landlord offers them six months of free rent as a significant incentive to sign a long-term lease. Due to its most-favored-tenant clause, "Morning Brew" could request a similar period of free rent or an equivalent rent credit, ensuring they also benefit from the landlord's efforts to attract new, large tenants, even though their lease commenced much earlier.