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A most-favored-tenant clause is a provision in a lease contract that promises a tenant that he or she will also get the better concessions made to subsequent tenants if they are better than what the tenant is already getting.
This means that a tenant who is able to secure this term from a landlord, he is ensured of getting the best deal possible.
Landlord predictably loathe the most-favored-tenant clause as it puts them in an unfavorable position to capitalize on downward market trends when tenants are already secured.
This is why these terms often come with an active period. Landlords cannot wait to see them expire as such clauses can give them nightmares and affect their mental state when negotiating with new tenants.
For example, when one signs up a tenant for a $1,000 a month rental, the landlord would usually continue to collect that rental amount should the market fall to $900 a month. But with this condition written in the contract, the tenant would have his rental lowered to $900 should a new tenant be signed up at that rate.
The practice of most-favored-tenant clause is most observable in commercial buildings and shopping malls.
Anchor tenants know that they have a lot of leverage over landlords as they have enormous pulling power in terms of attracting crowds. Therefore, they understandably request for such favored clauses so that they can ensure they get the best deal from the landlord.
Failing to concede this clause can often deter an anchor tenant to set up shop as they don’t feel appreciated by the landlord.