A commercial lease typically comes with an end date. It may be a year, three years, five years or a custom amount of time — based on what both sides discuss when signing. Either way, it ends on that date.
If the lease does not have an option to extend, then, the landlord can decide not to offer the tenant more time. This can be catastrophic for a business. If the company is doing well and the lease runs out, it feels like getting evicted.
This is why many owners make sure that their lease has an option to extend. This is also sometimes called an option to renew, but it does essentially the same thing. It gives the tenant the option to make the lease longer if they want to stay in the space.
For instance, the lease may be for five years to start, but then it comes with an option to renew for three years. When that term runs out, the option comes up again. The tenant can, therefore, choose how long they want to stay in the space in these increments.
The option to extend will generally specify things like:
- When notification needs to be given
- If the rent will change and/or how to negotiate the new rent
- How many extension the tenant is permitted to use
- The length of the extensions
- If the full terms of the initial lease still apply
Understanding the fine print of a commercial lease is critical, but it is something that new business owners may neglect in their hurry to open their doors. Make sure that you slow down and take the time to consider what you’re signing and the legal ramifications of that document.