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Understanding Lease-Renewal
Options |
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Landlords and leasing agents typically want tenants
to sign long-term leases. This type of lease, which may extend
over many years, guarantees the landlord a reliable stream of
rental income and allows them to avoid the hassle and expense
of re-leasing the space. But if your business is growing and
you don't want to lock into a 5- or 10-year lease, consider a
short-term lease with renewal options. A renewal clause in a
real estate lease allows a tenant to decide whether or not to
extend the lease once the initial lease term expires. You may,
for example, negotiate a two-year lease with four two-year
renewal options, rather than a fixed 10-year
lease.
When you discuss renewal options with a
landlord, try to negotiate a series of predetermined rent
increases for each renewal term. Renewal options that allow a
landlord to raise rents based on fair-market rates can result
in large rent increases — especially if your business operates
in a booming area where commercial space is in demand.
Some landlords are reluctant to grant renewal options
because it limits their flexibility to market the space to
prospective tenants. Others, however, see renewal clauses as a
good way to keep tenants without having to renegotiate their
leases after the original term expires.
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