Don’t Miss Your Option to Renew
Did you feel relief when you finalized the lease of your new office space?
How about when you finally got everything to look and operate the way you wanted?
That satisfaction may be sweet — but it means you probably pushed most of that ‘no longer relevant’ lease jargon to the back of your mind.
When you moved to your current office space, you made a considerable investment in the design, renovations, furniture and IT network based on your requirements.
In an effort to protect your interest in the space you’ve carefully created, you likely negotiated an option to renew.
After all, who wants to invest all that time and money only to be forced to relocate at the end of their lease?
Filed Away and Forgotten
More often than not, tenants sign their lease, file it away and check off that box on their to-do list.
…And then, they completely forget about it.
Why re-visit all that legal mumbo jumbo? It’s not exactly a page-turner.
Where to look for your Renewal Rights
Once you have found your lease (and brushed off any dust) skip to the table of contents and try to locate a clause called “option to renew” or “right to renew”. Sometimes this is buried in the “special clauses” on a separate schedule.
If you can find the clause it will likely read something like the following:
“The Tenant shall have the option to renew provided the Tenant is not in material default of the Lease, with respect to the Leased Premises and any additional space leased pursuant to the Lease…”
Note, if you have been in ‘default’ you may have lost the right to exercise the option to renew.
The Number of Options and Length of Term
Then the clause will typically state how many options you have, and how long the renewal term will be – something like this:
…for One (1) additional term of Five (5) years on the same terms and conditions…”
Fair Market Rent
Next, the clause will provide some general guidelines for the renewal term rent:
“…save only for the Net Rent and any further Renewal Options. The Net Rent during the renewal term will be the fair market rent, all economic inducement factors considered for comparable premises in comparable buildings agreed between the parties, and failing such agreement, as determined by arbitration pursuant to the Provincial Arbitration Act.”
A Critical Date
And, finally, there will be a period that you are to provide written notice:
“To exercise this Option to Renew, the Tenant shall provide written notice to the Landlord no later than ______(typically 6 to 12 months) months prior to the date of expiry of the current term“
What if I can’t find the Clause or I miss my Notice Period?
If you don’t have an option to renew, or you missed your notice period…. don’t panic! Your landlord likely wants you to stay, and they probably aren’t going to lease your space to someone else just yet.
That said, what if a much larger tenant in the building needs expansion space? Perhaps there is a tenant with a better use? Maybe there is someone else that is willing to pay more than you for the space?
Your landlord is likely a good person, but let’s face it. They’re also running a business. I know if I was in their shoes, I would do my best to accommodate the larger tenant – even if that meant forcing a smaller tenant to relocate, I would consider a better use for the space, and I would try to get a higher rent.
Take Action Now
To ensure you don’t let your option to renew slip away, consider doing the following:
- Create a lease summary that highlights critical dates in your Lease such as your notice period;
- Set a calendar alert or a reminder — one that you’ll pay attention to — of those critical dates;
- Prepare your renewal notice in advance and append it to your lease.
Think of it as part of a bigger leasing strategy that aims to protect your interest in your space and avoid the unnecessary, last-minute scrambling of being forced to relocate.
It’s just good business. And, if you don’t have the time or interest in taking these steps, request a lease summary from your lawyer, or outsource it to a broker.
For common questions like “can I renew my lease for less than the whole space?”, “can a subtenant exercise an option to renew?”, “will my lease automatically renew?”, “are a lease renewal and extension the same thing?” please contact me directly.
Look out for my next post where I review ‘fair market rent’.