Originally published in Interiors & Sources

07/15/2013

Potential Property Pitfalls at Lease Renewal Time

About to sign a new lease? Avoid unnecessary headaches and expense with these tips

By Barry R. Katz

 
About to renew your lease? Avoid these pitfalls.

Most leases are complicated with numerous provisions that will impact operations.  If you’re about to renew your lease or are working with a new real estate management agent, look out for these lease provisions that might cause issues or problems.  While no two situations are the same, remember that in the existing market most landlords have great incentive to keep an existing tenant.

Do You Want to Stay? 
The threshold question for a facilities manager/ownership is whether you want to renew.  The answer to this question involves a combination of factors: 

  1. Do you need less or more space?
  2. Have any improvements paid by the tenant been significantly depreciated?
  3. What are the costs of moving your company to another location?
  4. What is the availability of other leasing options in the target geographic area?

While your landlord should be motivated to keep an existing tenant, other competing landlords will also grant incentives to lure a new tenant.

Term and Rent
Make sure the lease reflects the business deal as stated to you.  Double-check the commencement and expiration dates and the stated rent, particularly annual rent increases.

Option to Extend Term
The notice of renewal must be delivered in a timely manner, as this is a date that you do not want to miss.  In addition, the lease will have specific provisions as to how notice of renewal needs to be delivered; usually by certified mail or by personal delivery.  These provisions are strictly interpreted by courts. 

It is important to pay attention to these provisions.  For example, several years ago this author became aware of a tenant that thought it needed to give notice of renewal no later than six months prior to expiration of the lease when it turned out that 270 days (nine months) advance written notice was required.  The landlord used this mistake to renegotiate some of the business terms of the renewal.


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