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What to Look for on Lease Renewal

What to Look for on Lease Renewal

There is a lot that’s involved in renewing a commercial lease or renting a commercial space. Whether you’re the landlord or a business looking to occupy commercial space, it’s a significant responsibility to take on. If not approached carefully, businesses can go under as a result of not fully understanding the lease they are agreeing to. Likewise, commercial property owners and landlords can get themselves in trouble if they’re not careful about how they’re structuring their agreements.

Always make sure that you understand every part of an agreement before signing (e.g., amount of rent due, length of the lease, construction limitations of the physical space).

Commercial Leases vs. Residential Leases

It helps to understand that viewing lease renewal from either a commercial or residential point of view is going to differ. While there may be similarities between renewing a lease for a resident or a commercial business, there are some fundamental differences:

Less protection laws for the consumer.

Most of the consumer protection laws that come with residential leases are not present in a commercial lease.

No standardized forms.

Commercial leases do not have a “standard” lease form or agreement like a residential lease may. Instead, a commercial lease is customized to each landlord and their needs. Therefore, it’s even more important to be able to thoroughly read through any agreement that you decide to sign.

Leases are binding and long-term.

Typically, most commercial leases persist for a great deal of time and it’s moderately difficult to break any kind of agreement. This is because commercial leases are legally binding contracts and typically involve a much larger sum of money than any residential lease.

More negotiations and customization.

As a result of commercial leases being customized to each landlord individually, there’s going to be many more negotiations involved in establishing a lease (or getting one renewed). Generally speaking, landlords need to ensure that their property is being utilized and are therefore willing to work with most businesses, whether they are leasing for the first time or trying to renew.

Make Sure Commercial Property Needs Are Met

When looking to renew a lease for a business, you want to ensure that the space is still worthwhile for your commercial pursuits. Can your business still afford the rent that is being asked? Are you planning on staying in the same property for the duration of the proposed lease renewal? If you’re expecting your business to grow significantly within the next 5 or 10 years, then it may not make sense to renew your lease if the original was set at 10 years.

Additionally, you want to make sure that the space you’re renewing is suitable for the needs of your business. For example, if you’re beginning to expand and grow your business and need to make modifications to the space, will the contract allow you to do so? Can your landlord take care of those modifications?

On the other side, if you’re a landlord and trying to get a commercial tenant to renew, then it can be worthwhile to be flexible in what you offer and how you can help. For example, you can make sure that the needs of your commercial tenant are met by providing them the flexibility to modify the space as much as you possibly can.

Start Negotiations Early

Whether you’re a commercial renter or a landlord looking for tenants to occupy the commercial space, it helps to get negotiations started as early as possible. When you sense that a lease renewal is something that is likely to be pursued in the future, it’s worth starting the discussion to ensure that there is enough time to negotiate.

The last thing you want is to be stuck with a couple of weeks (or less) left to renegotiate and renew your lease. It’s recommended to start the conversation and any renegotiations of a lease renewal as much as months in advance.

Lease Renewal Characteristics You Need to Understand

When it comes down to finalizing a lease renewal, there are some key characteristics that you need to understand in and out. You’ll need to know more than just what they mean: you need to make sure that you fully understand how it pertains to your unique situation. As a landlord, you’ll have a better chance at securing the ideal commercial tenant if you are also able to view each of these characteristics from the perspective of the prospective commercial tenant.

  • Length of the lease and the specific dates and times of when it begins and ends.
  • Amount of the rent and whether or not rent escalations are permitted (and how they’ll be calculated).
  • What’s included (and not included) when paying rent:
    • Insurance
    • Property Taxes
    • Maintenance Costs
  • How you will be charged for rent or additional maintenance services.
  • How disputes will be handled.
  • How a lease may be terminated if needed. In other words, is there a notice requirement and are there any penalties for terminating a lease earlier than agreed upon?
  • Will there be another option to renew or extend the lease.
  • Are there any specifications and/or restrictions for setting up a storefront sign?
  • Who is responsible for maintaining the property (e.g., heating and air conditioning systems)?
  • Are there any expected property improvements or modifications? Who is responsible for paying them?
  • What are the security deposits and what are the requirements for it to be returned?

There’s a lot that goes into renewing a lease, especially for commercial tenants and landlords. If you have questions about lease renewals, give us a call or send us a message today and we’ll be happy to help!