If you signed a commercial lease as a tenant in California, one or more lease extension options might be included in the agreement. A lease extension option is a clause that allows you, prior to the expiration of the current lease term, to extend the lease for another set period. If you’re thinking about exercising this option instead of moving or renegotiating the lease, consider the following:
1. Know when to use a lease extension option
First off, make sure to keep track of when you are allowed to exercise this option. The option will probably give you a timeframe during which you must give notice to the landlord. If you wait too long, you might lose your chance to extend the lease.
Secondly, keeping track of market conditions can be a big help in deciding whether to exercise the extension option. If commercial space is scarce, and the landlord will have multiple businesses to choose from, this might be a good time to exercise the option. In that situation, you might not get as good a deal if you try to renegotiate the lease or go elsewhere.
2. Know whether to use a lease extension option
The nature of your business situation can help inform your decision on whether to exercise the lease extension option. Moving your business might not be practical in these situations:
- Your business operates out of a specialty facility and finding another would be difficult.
- The location itself is great for business traffic (i.e., right next to a popular anchor store).
- The property has undergone extensive renovations, rendering it superior to other potential properties.
- Disability access or other requirements are well above existing legal standards.
- Your business requires the use of heavy machinery or other items that would be difficult to move to another location.
These business considerations should be taken into account if you are thinking about exercising a lease extension option. You may decide staying in place is better than moving to another location.
3. Know if you can use a lease extension option
Obviously, the extension option must actually be included in the lease for you to be able to exercise it. But even if it is included, depending on the circumstances, it might not be enforceable.
Often times, the rental price will not be included as part of the extension. There might be language that provides for reaching a mutual agreement or using the fair market value to determine the new rent. If the language does not include an ascertainable standard for figuring out the price, it might not be enforceable.
For tenants, having a lease extension option can be a comfort when renegotiating or relocating won’t work for the business. It helps to have a good idea of how it works, in case you decide to exercise that option.
SAN DIEGO LAW FIRM™ can help you with your commercial lease extension options
Our experienced business lawyers can draft a new lease for you, or review an existing lease and help you understand your rights and obligations. If you need help with lease renegotiation, we can help you reach an agreement that works for both sides.
For more information or to schedule an appointment, click the button below, or call us at 619-794-0243. We look forward to helping you.