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What is a commercial lease extension agreement?

April 9, 2020 | by
Reviewed by real estate expert Jonathan Tootell

After investing time and energy into your commercial real estate search, you found the right property for your business, signed the lease, and have enjoyed a positive landlord and tenant experience for the entire length of your contract term. But now the lease term is about to expire, and the question is: what are you going to do next?

If you are content with your business’s present situation (and feel confident that you will be for the near future), what you will likely want to do is seek a commercial lease extension agreement with the property owner. Signing a lease extension agreement will enable your company to continue staying at your present location under the terms of your existing lease without any disruption.

Reasons for wanting a commercial lease extension agreement

There are many reasons why a company or organization may want to get a commercial lease extension agreement when the original lease is soon to expire. For example:

  • You have a good deal on your present lease agreement, and, having perused other options currently available on the commercial real estate market, you don’t think you will be able to find another better option out there
  • The size of your business has remained relatively stable and everyone is comfortable and thriving at your current property
  • You have had a really good landlord and tenant relationship and don’t want to risk switching to a new landlord who might not be as easy to deal with
  • The current property’s location is perfect for your business and there are not presently any other properties available for rent in the area
  • The legal terms and conditions of your existing lease offer provisions and rights that you are happy with, and you don’t want to have to negotiate a brand new contract

It could also be any combination of the above reasons that might make you want a commercial lease extension agreement, or the simple fact that searching for commercial real estate can be time consuming and you don’t want to move!

Are the terms and conditions the same in an extended lease agreement?

The attraction of a commercial lease extension is the possibility of essentially renewing your current contract. Presumably if you want a lease extension, you are pretty happy with the present terms and conditions and want to continue that existing lease agreement for yet another term.

That said, the landlord and tenant are not required to stick completely to the current provisions if both parties want the option to make some changes to the contract. For instance, the lease extension could be altered to include changes in the amount of monthly rent, the addition or removal of certain provisions in the original lease, or to create either a shorter or longer lease term for the contract.

Negotiating the contract

Oftentimes when a commercial lease is about to expire, the property owner will automatically furnish the documents for a lease extension agreement for tenants to consider, typically based on a template that they use for most lease extensions. Tenants may want to consult an attorney from a trusted law firm or an experienced commercial real estate tenant broker to examine the commercial lease extension agreement documents.

The broker should make sure the terms and conditions are still acceptable to the renter, make certain that all of the tenant’s rights are respected, and ensure that there are no new provisions that have been added without the tenant’s knowledge or understanding. Once both the landlord and tenant feel comfortable with the lease extension agreement, they can sign and plan to enjoy another successful term together.

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