Economic Obsolescence Clause

Economic Obsolescence Clause

An Economic Obsolescence Clause is a provision included in a lease agreement or a mortgage that allows for adjustments in rent or mortgage payments due to external factors that negatively impact the value of the property. This clause recognizes that certain conditions outside the control of the property owner—such as changes in the local economy, increased crime rates, or new government regulations—can diminish the property’s worth.

This clause is particularly relevant in real estate transactions where market conditions can fluctuate significantly. For instance, if a new factory opens nearby and causes environmental concerns or lowers property values due to increased traffic, the economic obsolescence clause may allow the tenant or borrower to renegotiate terms of their lease or loan.

By including an Economic Obsolescence Clause, parties can mitigate the risks associated with unforeseen external factors, providing a measure of protection for both landlords and tenants, as well as lenders and borrowers. This ensures that financial obligations reflect the current market conditions and the true value of the property affected by these external influences.