Things to Consider When Extending your Commercial LeaseBy sedoo
For an individual or business that is leasing commercial premises (the “Premises”) as a Tenant from a Landlord, there are some critical things to consider when extending the term of your original lease (the “Lease”) for the Premises.
First, you should review your Lease to see if your Lease already allows for an option to extend the term of the Lease. If your Lease does grant an option to extend, you will have to review the terms and conditions for triggering the extension of the term as well as any conditions that may set out how rent is to be determined for the extended term of the Lease.
You should also review the Lease to see if you want to negotiate trying to change how the Lease is held. If you were holding the Lease as an individual in your personal capacity or you provided a personal indemnity you may want to try to include a change of how the Lease is held and obtain a release or limitation to an indemnity as a condition for the extension. Everyone’s situation is different, but it may be best based on your personal circumstances to hold the Lease under a corporation instead of in a personal capacity and to also remove any indemnifiers that were a part of the Lease originally. Holding a Lease personally or guaranteeing a Lease an indemnifier is a liability that may impact your ability to borrow money in your personal capacity so it may be something to consider changing when negotiating the extension of your Lease.
You should also see if the Landlord is open to providing incentives to retain you as a Tenant. Would the Landlord be opening to upgrading systems such as the lighting or HVAC? Would the Landlord be open to providing you with a Tenant Allowance to make leasehold improvements to the Premises? Would the Landlord be open to giving you a rent-free period or a basic rent-free period? These are some of the things to consider when negotiating the extension of your Lease.
You also have to keep in mind what the Lease usually sets out the rights of the parties if you are unable to agree to an extension of your Lease. What are your obligations to restore the Premises to its original state or the removal of any alterations, trade fixtures of other leasehold improvements that were made to the Premises? This also has to be considered.
Finally, the things to consider outlined above are not an exhaustive list and as always it strongly recommended for you to retain a lawyer that practices in the area of commercial leasing when considering and reviewing any matters that relate to your own circumstances for your own Lease.
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Spencer S. Duggan is an Associate with Kormans LLP. His practice areas include employment issues, the purchase and sale of businesses, mergers, joint venture agreements, organizing business structures, shareholder agreements, re-organizing existing businesses and corporate structures, leasing, commercial real estate, debt finance and dispute resolution. You can reach Spencer at firstname.lastname@example.org.
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