Extension and Expansion Options in Commercial Leases: Key Provisions and Practical Considerations

Description

It is common in commercial leases for tenants and landlords to negotiate extension and expansion options in the initial lease. For a tenant, such an option allows for more certainty about future occupancy, bolstering its decision to invest in that location. For a landlord, such options--while not a guarantee of future rents--provide a higher likelihood of continuity of occupancy. Such arrangements can result in high-yield and low-risk lease agreements for both parties.

But it is paramount for counsel to negotiate and document the terms in advance. From renewal rates to procedures related to exercising an option, there are several issues that tenants and landlords must consider to protect themselves and clarify the understanding of an agreement that may not become effective for many years.

Key to structuring such options is a proper focus on issues, including rent calculations, performance conditions, limitations on assignment, and risk management requirements. Recent cases address these commercial lease provisions.

Listen as our authoritative panel of real estate practitioners provides practical guidance and strategic insights on these options provisions, with a focus on best practices in negotiating, drafting, and documenting commercial lease renewal options, options to expand or reduce the space leased, and options for early termination. The panel will also address the interplay between these options and related rent escalation and rent formula calculation clauses to minimize client risk.