This past week I negotiated a lease on behalf of an ophthalmologist and I wanted to share an essential but often overlooked lease provision, “Termination upon Death or Disability.” If a closely-held company is entering into a lease, the company needs to consider whether it can continue to operate if a critical owner or employee dies or becomes disabled and cannot work. Examples include physicians, dentists, veterinarians, attorneys, architects, chiropractors and other types of unique personal services where another person cannot easily step in and run the company. The company must have the ability to terminate the lease if it loses its critical person.
Without protective language in the lease, the company will remain bound to the lease despite the absence of the critical person. The lease is often between the company and the landlord, so the company still legally survives and remains obligated to perform under the lease. If the company defaults, the landlord can strip the company of its assets. Even worse, the lease could be personally guaranteed and the guarantors or guarantors’ estate could remain liable for the company’s performance under the lease.
These types of companies must include a “death and disability” clause in their leases to allow lease termination in the event of a death or disability of a critical person. Following is an example of a “death and disability” clause:
In the event of the death of ____________ (the “Critical Person”), or in the event the Critical Person becomes Disabled (as defined below), Tenant shall have the option of terminating this Lease upon thirty (30) days’ written notice to Landlord. The effective date of such termination shall be the thirtieth (30th) day following delivery of such written notice. On such termination date, Tenant shall surrender the Premises to Landlord in accordance with this Lease, this Lease shall terminate and neither party will have any further obligations with respect to this Lease. For purposes of this section, “Disabled” shall mean the inability of the Critical Person to perform his/her customary duties for Tenant for a period of at least one hundred eighty (180) consecutive days. In the event the Landlord disputes whether the Critical Person is Disabled, the Critical Person shall submit to examinations by two medical doctors, one selected by the Tenant and the other selected by the Landlord. The two medical doctors shall examine the Critical Person and determine whether it is more likely than not that the Critical Person will be unable to perform his/her customary duties for Tenant for a period of one hundred eighty (180) consecutive days from the date of the examination. If the two medical doctors agree, their decision shall be binding and final. If the two medical doctors disagree, they shall select a third medical doctor, whose determination shall be final and binding.
Prior to using any language or concepts from this blog entry, consult with an attorney.
The LaMaster Law Firm, PLLC, a boutique style law firm committed to delivering legal services to healthcare professionals and their practices. Our services include assisting with the purchase and sale of practices, leasing, employment law matters, regulatory compliance, and other legal matters.
For more information about Matt LaMaster, The LaMaster Law Firm, PLLC, and dental specific legal services, visit www.lamasterlaw.com.