How can you ensure your commercial lease renewal option is fair and favorable?

1 Know your market

Before you sign a lease with a renewal option, you should research the current and projected market conditions for your location, industry, and property type. This will help you determine whether the rent and other terms offered by the landlord are reasonable and competitive. You should also compare the renewal option with other available properties in the area, and consider the costs and benefits of moving versus staying. If you find that the landlord is asking for too high a rent or too long a term, you may want to negotiate for better terms or look for another option.

2 Understand the terms

A renewal option is not a guarantee that you can stay in your premises, but rather a contractual clause that gives you the right to renew your lease under certain conditions. It is essential to read and understand the terms of the renewal option carefully, and make any necessary clarifications or changes. Pay attention to the renewal period, which may be fixed or variable; the renewal rent, which may be based on a fixed rate, a percentage increase, a market rate, or a combination of these factors; the renewal notice, which may be several months or weeks before the lease expiration date; and the renewal conditions, such as maintenance, repairs, improvements, subleasing, assignment, or termination. It is important to negotiate for a fair and affordable renewal rent that reflects the value of the property and market conditions. Additionally, you must comply with the renewal notice requirement or risk losing your right to renew your lease or facing penalties. Make sure all conditions are consistent with your original lease and business needs.

3 Negotiate for your best interests

A renewal option is not a fixed or final agreement, but a starting point for further negotiations with the landlord. Therefore, you should never accept the renewal option as it is without first being satisfied with all the terms and conditions. You should always strive to negotiate in your best interest, and seek legal or professional advice if needed. Consider negotiating for a lower or more flexible renewal rent, a shorter or longer renewal period, a more favorable renewal notice, a more favorable rent review or adjustment mechanism, a more favorable option to purchase or terminate the lease, a more favorable allocation of maintenance, repair, or improvement costs, and a more favorable subleasing or assignment clause. By doing so, you can make sure your renewal option is fair and beneficial for your business while also protecting your rights and interests.

4 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?