What is a Guaranteed Takedown?
A guaranteed takedown refers to a provision in a lease where the landlord ensures the availability of a specified amount of space to the tenant by a specific date, regardless of other circumstances, and the tenant guarantees the taking of such space under the terms and conditions. This provision is often found in build-to-suit lease agreements or cases where a tenant commits to space on a future date to be constructed by the landlord.
In Build-to-suit leases and development projects, these provisions are more common when a landlord commits to constructing or renovating the space to meet a specific tenant requirement, such as layout, design, or technical specification, by a future date to attract prospects.
In standard leases, a guaranteed takedown may apply when a tenant signs with a lease and guarantees to take an additional space at a later date. For example, a Tenant takes 10,000 sf at the start of the lease but guarantees to expand another 5,000 sf in one year.
What are the Pros & Cons For Tenants?
Tenant Pros:
Certainty: Tenants benefit from the assurance that the required space will be available and completed by a specific date. This allows them to confidently plan their relocation or expansion.
Customization: Guaranteed takedowns often accompany build-to-suit leases, enabling tenants to customize the space to their exact specifications, optimizing functionality and efficiency for their business operations.
Tenant Cons:
Risk of Delays: Despite the guarantee, construction or renovation projects may encounter unforeseen delays due to permitting issues, construction setbacks, or financing challenges, potentially affecting the occupancy timeline.
Cost Considerations: Customized build-to-suit spaces may involve higher upfront costs for the tenant, including design, construction, and fit-out expenses, compared to leasing pre-existing space.
Guaranteed Expansion: If tenants’ business plans change and they no longer need the space, they are committed to expanding.
What are the Pros & Cons For Landlord?
Landlord Pros:
Tenant Attraction: Offering guaranteed takedowns can make the property more attractive to potential tenants, particularly those with specific space requirements. The guaranteed takedown can increase the landlord’s ability to secure leases and generate rental income.
Long-Term Stability: Build-to-suit leases with guaranteed takedowns often result in longer lease terms, providing landlords with stable, predictable income over an extended period.
Guaranteed Revenue: While it may be a concession to delay income on standard leases, it provides certainty of an expansion by an existing creditworthy tenant.
Landlord Cons:
Financial Risk: Landlords often bear most, if not all, the financial risk associated with construction or renovation projects, including upfront capital investment and the potential for cost overruns or delays.
Opportunity Cost: Committing space to a guaranteed takedown may limit the landlord’s flexibility in leasing to other tenants or pursuing alternative development opportunities during the construction or renovation.
