Cross-Default Clauses in Leases: Why They Matter for Tenants and Landlords

Answer

Intro: A cross-default clause is a common provision in commercial leases that links one agreement to another. In practice, it means that if a tenant defaults under one contract—such as a loan, another lease with the same landlord, or a related business agreement—that failure automatically counts as a default under the lease as well. This clause can have serious financial and legal consequences, so it is important for both landlords and tenants to understand its scope before signing.

How a cross-default clause works:

• Triggering events: If a tenant falls behind on a loan with the landlord’s affiliate, breaches another lease in the same building, or violates a related agreement, the landlord can declare a default under the current lease even if rent has been paid on time.
• Landlord’s benefit: This clause gives landlords more security by tying multiple obligations together. It prevents a tenant from keeping one lease in good standing while ignoring other commitments with the same landlord or lender.
• Tenant’s risk: A minor issue in a separate contract could jeopardize a valuable lease. For example, missing a payment on a smaller lease in one property could trigger eviction rights for a flagship location.

Key negotiation points for tenants:

• Limit the scope so that defaults only apply to material breaches, not small or technical violations.
• Request cure periods, giving time to fix issues before the landlord can act on a cross-default.
• Narrow the clause to cover only related leases within the same property, instead of all agreements with the landlord’s affiliates or lenders.
• Clarify whether cross-default applies to guarantors, subleases, or financing arrangements to avoid unintended consequences.

Why it matters in practice: Cross-default clauses appear most often in retail centers, office parks, and situations where a tenant leases multiple spaces from the same landlord. They are less common in standard residential leases but can still appear in certain multifamily or mixed-use projects. Because the financial exposure can be significant, many tenants negotiate heavily on this point during lease drafting.

Conclusion: A cross-default clause can dramatically expand a tenant’s risk by connecting separate agreements. Landlords often view it as a safeguard, while tenants see it as a potential trap. Before agreeing to such terms, it’s advisable to consult a licensed attorney who specializes in commercial real estate to review the language and ensure the clause reflects a fair balance of responsibilities.