Category: Lease

Lease Extension Clause – What to Know

What to Know About The Lease Extension Clause

When you’re signing a commercial lease, the extension clause may not seem as important as some other details like the rent and operating costs, but it’s a mistake not to carefully read the extension clause. Because tenants tend to receive the most benefits from this portion of the lease, landlords may try to use restrictive language or omit the clause entirely. Knowing the following information about lease extension clauses can help you protect your company from being forced to move at the end of your lease.

1. How to Notify Your Landlord
The lease extension spells out precisely how and when you need to notify your landlord that you intend to renew your lease. In most cases, you will need to submit written notice to the landlord. Leases may require you to do so 6 to 12 months before the end of the lease or by a certain deadline that is specified in the clause. If you fail to notify your landlord properly or on time, you will be ineligible to extend your lease.

2. Landlords Will Push for the Original Term Length
Most landlords will make the term of lease extensions equivalent to the original term of the lease, particularly if you previously had a short-term lease. To give yourself more flexibility, you can ask for the option to renew at different length terms. For example, you may have language inserted that gives you the ability to renew for three or five years.

3. Your Rent Rate May Not Be the Same Under the Extension
Landlords will often try to raise the rent when you sign an extension. In some cases, the clause may say that you can extend your lease with a new rent based on the current fair market value of your space at the time of renewal. It’s also possible for landlords to insert language that allows the rent to be increased with an extension based on changes in the consumer price index.
When possible, negotiate to extend your lease at your current rent. If the landlord refuses, you can ask to have the initial rent for the lease extension calculated based on whatever rent escalation method is used over the course of your current lease. Should you be unable to achieve this concession, make sure that at the very least the method of calculating the fair market value of the office space is spelled out clearly in the extension clause.

4. A Tenant Rep Broker Can Help You Get the Best Terms Possible (AT NO COST TO YOU – THE TENANT)
Tenant rep brokers are incredibly beneficial throughout the commercial real estate search process and can give you an edge when you’re negotiating your lease. With their knowledge of the market and potential relationship with your prospective landlord, tenant rep brokers can evaluate the extension clause, point out areas of concern and help you fight to have them changed. As landlords pay the fees for the tenant representative, having one at the negotiating table with you will not increase the costs of your move.

Source ReOptimizer Don Catalano

Pros and Cons to Short or Long Leases

So which is best for companies?

If you’re getting ready to lease a commercial space, finding the right property or unit is just the first step in the process. To get the most benefits out of the right space or property, you need the right lease agreement in place between you and your landlord and that means deciding whether a short or long-term lease is the better option for your business.

There is no single answer. Short and long-term leases both have distinct benefits and drawbacks that you need to be aware of before you begin lease discussions with a prospective landlord.

Advantages of a Short-Term Lease

– Your Business Is More Mobile. With a short-term lease, you’re not limited to your current space for long. If the location proves to be less than ideal, you decide a particular market isn’t right or your business grows by leaps and bounds, you’ll have the chance to relocate.

– The Process Will Move Faster. Short-term leases are usually much less complex, so if you need space quickly, they can be a good option.

Disadvantages of a Short-Term Lease

– Your Future Is Less Certain. With a short-term lease, you don’t have many guarantees about the future. It’s not easy to forecast expenses when you don’t know how much rent will cost in the future. There is also always a risk that the building may sell or your current landlord may decide to take the building in a new direction, leaving you unable to renew.

– You May Pay More for Your Lease. Short-term leases often end up being more costly for businesses not only because the rental rates are usually higher, but also due to the higher risk of costs associated with relocating once leases are up.

Advantages of a Long-Term Lease

– You Have More Bargaining Power. Landlords typically prefer long-term leases, and if you’re willing to commit to one, you have more leverage to negotiate. Concessions like lower rents and more flexible terms can make long-term leases very attractive.

– You Can Plan for the Future. Once the lease is signed, you can easily forecast rental costs and be assured that you won’t have relocation costs for a set period of time.

Disadvantages of a Long-Term Lease

– Negotiations May Be Lengthy. The complex nature of long-term leases can make for a slower negotiation process.

– You Are Locked In–Probably. With long-term leases, you usually won’t have the flexibility to move into a different market or to expand into a new location. That said, some landlords will offer break options at certain times during the lease period, giving you the chance to move if you need to.

Ultimately, you need to think of your company’s future as you consider whether to enter into a long or short-term lease agreement. If you’re not sure whether or not you want to remain in the area, suspect that a period of growth is on the horizon or are otherwise uncertain of the future, a short-term lease will likely be the best choice for your company’s needs. On the other hand, businesses that are ready to become established in an area, are no longer expanding rapidly and are financially stable can benefit largely from a long-term lease.

Benefits of Short & Long Commercial Leases

lease
When choosing between a short or long commercial lease, there are certain things to consider.  There are benefits of choosing either a short-term commercial lease or a long-term commercial lease for your business.

Benefits of Short Commercial Leases

A short commercial lease is generally less than 5 years. For companies who want to test their concepts and their markets, they will often find a short-term commercial lease the best.

According to Bloomberg, 80 percent of businesses fail in the first 18 months. Having a short-term lease will save business founders from the hook of unpaid rent if they go out of business. With short-term leases, entrepreneurs can experiment their new ventures with a low-risk rent.

Tenants can scale up or down without any difficulties. They can also move to a new location without significant loss in rent payment.  long-term tenants would have to transfer or sublease their lease to another tenant in order to relocate.

Benefits of Long-Term Commercial Leases

A long-term commercial lease is a lease that is more than 5 years. To control rent expenses over a long period, many businesses (especially retailers) negotiate leases in excess of 20 years. Here are additional benefits of signing a long commercial lease.

In a long-term commercial lease, you know how much your rent will increase annually, regardless of what happens in the market conditions. This helps businesses to make long term business plans without being concerned about market fluctuations.  With predictability comes stability. Stability helps your business. you will be around  for a while—enough to register your brand in the mind of your customers.  It  helps ease the inconvenience that your employees may experience if you were changing locations often.

With a long commercial lease, you have more bargaining power. There are certain rights that tenants who sign long commercial leases enjoy that those on short term leases do not have.  Landlords are more willing to give tenant improvement allowance like free rent or access to a larger space.

Both short commercial leases and long commercial leases have their advantages and disadvantages. The choice between short or long commercial leases depends on a number of factors.

Careful considerations must be made in examining the business objectives before signing the leases. In addition, you have to consider your company’s future as you enter into a long or short-term lease agreement. If you expect to be around for a long time, you may want to consider a long commercial lease, otherwise, it would be safe to sign a short commercial lease.

Related Article:  Pros and Cons to Short or Long Leases

 

Source:   Don Catalano  Re-Optimizer

Searching For It Or Getting It From A Pro?

Searching For It Or Getting It From A Pro?

Do you have questions about commercial real estate? As a tenant, deciphering all the lingo in a commercial lease can be a daunting task. How to you know if you are getting the lease deal?

 

Alternatively, as a landlord do you have the time to market your industrial vacancy, review all the offer to lease being presented and ensure you get the best tenant for the space?

 

For sellers and buyers, things get even more complicated when selling or buying industrial properties or investment properties.

 

Do you think you are achieving your industrial or commercial real estate goals by going at it alone? (i.e. without the help of real estate pro)

 

Like everyone else – you could “google” and do some research. However, like finding out why you have an itch (answer: insect bite to more serious afflictions) finding real estate information online can lead to more confusion.

 

First – often the information found is general in nature. Based on our experience, each lease or purchase transactions are unique. What may work for one, may not work for another.

Secondly – does the information found is specific to the location (i.e. what’s acceptable in the US may not be applicable in Canada (or Alberta)

Thirdly – the sheer volume of information you can find online is mind boggling and confusing at best.

And lastly, the time required getting it all done while running your business.

 

What’s the solution to ensure your achieve those commercial and / or industrial real estate goals?   Get the advice of a qualified commercial real estate pro!

 

After taking the time to clearly understand your business, our real estate professionals will use their vast market know-how and experience to identify and present your best options. From leasing warehouse, storage, assembly space, to office space, to buying a commercial/industrial building as an owner/user or as an investment to industrial land. We are your one stop-shop in Calgary for industrial and commercial real estate services.

 

We will work for you – while your continue running your business!

 

What have you got to lose? Nothing….What you have got to gain?  EVERYTHING!

 

Let us search for the IDEAL space for your business!

5 Tips For Choosing Warehouse Space For Your Business

5 Tips For Choosing Warehouse Space For Your Business

1- Requirements

Site – Layout  – Ease of Access

2- Location

3- Job market of the area

4- Future expansion

5- Budget

The perfect warehouse space for your business will be influenced by these factors.  it is important that you give them some thoughts.  This is where our commercial leasing experts can help with narrowing down your choices.

We currently have in our portfolio warehouse/fabrication space that you may find suitable for your business or we can search based on your parameters.

Sign up to receive our monthly updates, search our listings – or better yet – let us search for you!

Tell us what you are looking for and see what we can do to help you achieve your commercial/industrial real estate goals!

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