Renewing & Extending Commercial Real Estate Leases

Contact Neufeld Legal PC for commercial leasing legal matters at 403-400-4092 / 905-616-8864 or Chris@NeufeldLegal.com

Whether a commercial tenant is negotiating the terms of the initial lease agreement or the current term of a commercial lease arrangement is coming to its end, it is important to understand the contractual specifics pertaining to the renewal or extension of the lease term.

From the perspective of renewing or extending a commercial lease, the lease agreement must set out very clearly specifics as to the subsequent term, rent, and essential conditions as it relates to the renewal or extension of the lease arrangement beyond its current term. The legal paperwork needs to be clear as to when and how to exercise the renewal or extension of the lease term, such that the commercial tenant does not miss the stated deadline and is capable of satisfying the requisite procedures for exercising the renewal or extension option.

Thereafter, it is important to ascertain if any changes to the lease arrangement are to occur with the renewal or extension of the lease, beyond the standard upward increase in the base rent, which can pertain to inducements and work on the leased premises. This can also include whether the renewal or extension is on the same terms as in the original lease, or on the landlord’s then-current terms, which could be significantly harsher.

The increase in the base rent is going to be a primary consideration in the renewal or extension provision of the contract, whether it is a prescribed dollar amount, percentage increase from the prior base rent, a fair market determination or such other form of establishing the new base rent. The particulars of any fair market rental value test needs to be clearly set out and understood, including if rent during a renewal or extension term is to be agreed or arbitrated, given how significant cost can be to continuing in the leased premises.

Commercial tenants also need to be aware of any conditions precedent to the exercise of the right of renewal or extension, such as: no existing default, no default during the term of the lease, and no assignment of the lease. Being precluded from assigning the lease to exercise the renewal or extension of the lease term can be problematic, given that this can be extremely beneficial to both the original tenant and their assignee, such that pushing for the lease to retain its renewal or extension rights following its assignment can prove highly advantageous.

Should it be possible to assign the lease while retaining the renewal / extension rights, it is also important to understand whether the guarantor, indemnifier, or tenant who has assigned its leasehold interest during the initial term must join in the exercise of the option and execute a new indemnity covenant.

These are but some of the considerations attendant with the renewal or extension of a commercial lease, with the particulars being significant, such that the value of professional legal counsel cannot be understated .

For knowledgeable and experienced legal representation in negotiating, reviewing and drafting lease agreements, and protecting your business’ legal rights thereunder, contact lease lawyer Christopher Neufeld at 403-400-4092 [Alberta], 905-616-8864 [Ontario] or Chris@NeufeldLegal.com.

Renew / Extend a Commercial Leases

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