Many Landlords are reluctant to give tenants an Option to Renew a Commercial Lease for numerous reasons. Such options can limit the Landlord’s flexibility far into the future. Listed below are some of the reasons why a Landlord may avoid the Option to Renew clause:
- Limits landlord’s ability to redevelop or release the building or space.
- Limits Landlord’s ability to lease to a larger expanding tenant.
- If Market goes up more than the agreed upon Option rate, then Tenant can make the Landlord wait for the option to expire and then pass on the option unless the Landlord lowers his price below the agreed amount.
- If Market goes down, then the Landlord loses rental upside.
- If Landlord and Tenant agree to wait until option period to decide on “Market Rent” , there could be a legal dispute to determine what Market Rent really is.
- Too difficult to determine a fair market value for the future.
- Tenant has all the control.
- If the Tenant is difficult but wants to stay then the Landlord is stuck.
When entering into a Lease, it is important to work with a licensed Real Estate Broker/Agent who has knowledge and experience in the Lease negotiation process.