Renewal Options

Long-term leases almost guarantee landlords a reliable stream of income. Most brokers and landlords prefer a longer term lease for many reasons. There is often never an issue of re-letting the space or any of those expenses until the expiration, so this gives the stability to both the landlord and the broker.

Consider a short-term lease with renewal options if your business is growing, as this will allow for that expansion.

A renewal clause would allow for a decision on extension of that particular lease within that particular space. What you could do is negotiate a two or three-year deal with two, three or four three-year renewal options, versus going with a 10 or 15-year lease.

You will also want to have the renewal option periods reflect a fixed rate, versus the standard landlord weighted fair market value increases during those same option years. The fair market valuations can get steep quickly, and you could be looking at an expensive liability during that time. Should your business be thriving, and you are wanting to stay put, then having set rental increases will offset the high demand of the space and the fair market valuation, and that is when it becomes a bargain lease deal.

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.