Five Lease Renewal Myths - dummies

By Dale Willerton, Jeff Grandfield

Part of Negotiating Commercial Leases & Renewals For Dummies Cheat Sheet

Many tenants have preconceived notions regarding a lease renewal or how they typically work, and quite often these ideas are inaccurate or completely wrong. Some commons misconceptions include:

  • Exercising the option: Tenants often assume that you must exercise the renewal option in order to renew the lease. You absolutely do not have to exercise your option to renew, and in many cases you don’t want to exercise your option because it limits what you can negotiate on for your renewal term.

  • Rents only go up: This is typically the landlord’s point of view, and some option clauses indicate that your rent must go up regardless of what is happening in the market. In many cases, tenants are in line for a rent reduction, but because of how they handle the negotiation or by exercising their option, they see a rent increase instead.

  • Tenant allowance or free rent: Landlords often say free rent or tenant allowances are only for new tenants. But why should a proven tenant not get the same benefit as a new tenant? Tenants frequently overlook these financial incentives or are led to believe that they’re not common or offered on renewals.

  • Additional lease provisions: A good reason not to exercise your renewal option is to address all other concerns on your lease. Whether it be parking, signage, improvements to the space, or simply adding more renewal-option clauses, your renewal is the time to deal with these issues.

  • False optimism: In some cases, it’s not the terms of the renewal the tenant should be looking at but the renewal itself. If you haven’t been profitable at your location for a number of years, perhaps it’s time to consider a relocation or closing your business.