Commercial Lease Renewals: Tips for Tenants
Is your commercial lease expiring within the next year? Read this article first!
By the time many commercial tenants realize their lease is expiring, it is often too late to give the tenant enough time to have proper lease negotiation discussions with the landlord. The earlier a tenant starts thinking about whether it wants to renew its lease, the more likely the tenant will be happy with its landlord-tenant relationship in the future. Below are a few tips for commercial tenants who are considering a lease renewal.
Do I want to renew my current lease?
Step one, a tenant must first decide whether it is interested in renewing its current lease, vacating the premises at the end of the term, or looking for different commercial space. In deciding, a tenant may consider whether it is happy with its current premises and relationship with the landlord, how much longer the business plans to operate, and whether the tenant is willing to relocate. Tenants will often express some dissatisfaction with the status quo but are unsure whether it is worth relocating. Beattie Padovano’s commercial attorneys can help advise what may be the best options for you.
When should I start thinking about renewing my lease?
The sooner the better! Once an initial lease is signed, many tenants do not think about an upcoming lease expiration date until the landlord contacts them about a possible renewal, and landlords should not be expected to remind tenants of their expiration date and will assume the tenants will vacate at the end of the term. We advise tenants to anticipate expiration and act proactively, generally, about a year prior to the expiration date (if not sooner!). The tenant should also consider whether they want to hire an attorney to assist in lease negation. The time it takes to negotiate a renewal can vary greatly depending on many factors, such as current market conditions, how many changes to the current lease the parties are looking for, and how responsive and accommodating the landlord may be. If a tenant is interested in possibly renewing its current lease but also wants to consider potentially relocating to another location, the tenant should allow ample time to begin conversations with the current landlord while also exploring alternate locations. The more time a tenant has to start the process, the more leverage they will likely have.
Does my lease automatically renew at the end of the current term?
Every lease is different. Most leases require the tenant to vacate and surrender the premises at the end of the lease term. If a tenant overstays the lease, the tenant may be deemed “in holdover” under the lease. Specific lease provisions may allow the lease to continue on a month-to-month basis but may also impose a substantial increase in rent during the holdover period. A comprehensive reading of the document is required.
A tenant should also consider whether a lease already provides built-in rights, such as a renewal or extension option. Beattie Padovano can help tenants determine whether exercising such option is in their best interests, advise as to other alternatives tenants may have, and guide tenants on how to properly exercise their rights under a lease. A missed deadline may result in a tenant waiving its rights under a lease.
What changes do I want to make to my lease?
Our clients often ask us “what changes to my lease should I ask from the landlord?” It depends! First, a thorough review of the existing lease documents is required to determine if any current provisions need to be updated or if any new provisions should be added. A tenant should consider what changes it wants to see on a day-to-day basis at the premises, as well as any long-term goals of its business. What was once a top priority for a business five years ago may no longer be a priority today. For example, owners of a small business may be contemplating retirement in the near future and should consider including new protections and rights in a lease. A start-up company, on the other hand, may be growing at an accelerated rate and may want to consider adding a right of first offer or right of first refusal on adjacent space. Our commercial attorneys can help strategize how best to incorporate protections for the tenant in a lease renewal, what “asks” from a landlord are market and reasonable, and which requests may not be reasonable or realistic.
The foregoing is just a brief overview of what commercial tenants should be thinking about when they have an upcoming lease renewal. Beattie Padovano LLC is available to provide guidance throughout the entire lease renewal process.
Nicole Serell, Esq.
(201) 799-2161
nserell@beattielaw.com
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