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Tenants should always negotiate a lease renewal option into their commercial lease. The option to renew is a benefit to the tenant, allowing the tenant to extend the lease beyond the initial term and to limit the costs of renewal.
Tenants should press for a notice period that is as long and as flexible as possible, giving their broker time to thoroughly evaluate the market alternatives and solicit proposals from alternative locations. Tenants should also press for flexibility in the term of the renewal period. That is, the tenant should have different renewal options (3 years, 5 years, 7 years) to maximize its flexibility. It is also important to clarify “fair market value” and insert a clause into the lease for arbitration in case the two parties cannot agree.
The lease renewal option protects the tenant’s rights and negotiation leverage in market conditions or situations that favor the landlord. Lease renewal negotiations typically favor the landlord, since tenants wish to avoid the costs associated with relocation. Special circumstances may further erode the tenant’s position: if the tenant has made substantial investments in its location, or if another tenant desires the space, the tenant may have to pay an above-market rate to remain in place. A well structured lease renewal option limits the cost of renewing the lease and can save the tenant a significant amount of money.
At Golden Group Real Estate, we specialize in tenant representation real estate services for office space users in the Chicago area, helping local business owners find office space and negotiate lease and purchase agreements. We never represent landlords, so we are prepared to negotiate aggressively on behalf of our tenant clients.
For more on Golden Group Real Estate, read about our real estate services. Let us know if we can help you find office space for rent or buildings for sale. Call us at (630) 805-2463, email us at firstname.lastname@example.org, or enter your office space search criteria below.
June 19, 2019
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