Jan 31, 2017

Commercial Lease Extension Clause Tips

By Don Catalano


Commercial Lease Extension Clause Tips.jpg

If you're currently in the process of searching for commercial office space to rent, you know what a time-consuming and costly job it is. After going through all of the work to find the perfect home for your company, the last thing you want is to be forced to move again when your lease expires. That's why it's important that you negotiate a fair lease extension clause in your commercial lease. Following these tips will help you do just that.


Evaluate your needs

The lease extension clause is language in your lease that allows you to renew your lease when it expires if you so desire. Often, the clause will have multiple periods of time listed. As an example, your initial lease may be for 5 years and you may have the option to renew two more times, meaning you can count on having your office space for at least 15 years. When you go to the negotiating table, have a rough idea of how long you foresee yourself needing your space. If you know you're going to need to be in the area for a project that will last 7, 10, 15 or 17 years, you'll be able to push for the right type of renewal to get your lease secured for the right length of time.


Fight for your original rent

Some landlords will try to set terms in a lease extension clause that allows the rent to reset at a new rate based on the fair market value of the space. This is advantageous to them, allowing them to make more on the space in the future, but it can be problematic for companies. You don't want to find yourself suddenly faced with a huge rent increase if you exercise your right to renew. You'll always have the option to renegotiate your lease if the value of the property drops.


Understand what action you'll need to take

Your extension clause will spell out what actions need to be taken to exercise your right to renew. The contract may be worded that you need to notify the landlord if you wish to renew or notify them only if you choose not to renew. Either way, there will be specific dates mentioned as deadlines for your actions. 


Enlist the help of an expert

Extension clauses are solely beneficial for tenants. As such, landlords may try to use weak language or word the clause in a way that makes it hard to interpret and therefore easy to break. Before you sign, have an attorney review the extension clause to ensure that it's airtight. Having a tenant rep broker by your side when you negotiate can also help to ensure that you get a fair extension clause.


Other Commercial Lease articles:

Making the Lease vs. Purchase Decision

Terms to Look For in Your Commercial Lease

Important Parts of a Commercial Lease You Don’t Want to Overlook


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Topics: Commercial Lease, lease extension

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Don Catalano

Don Catalano