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A commercial lease extension is a binding contract that extends a tenant's use of a commercial property past the original lease period. As a business owner, the commercial lease you signed when you first rented your business space is one of your most important contracts. When the lease term is about to expire, it's crucial to consider whether you want to extend the lease or find a new space. This blog post will guide you through everything about commercial lease extensions.
Legal Aspects of a Commercial Lease Extension
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Lease Terms and Conditions
The terms and conditions of the lease extension should be clearly stated in writing, including the length of the extension, the rent amount, any changes to the lease terms, and the renewal options.
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Rent Increase
If the lease extension includes a rent increase, it should be clearly stated in writing, and the increase should be reasonable and in line with the current market rates for similar commercial spaces in the area.
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Tenant Improvements
The lease extension may require the tenant to improve the space. The lease should specify who will pay for these improvements and whether they will be considered the property of the landlord or the tenant.
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Legal Compliance
The lease extension should comply with all applicable laws and regulations in California, including zoning laws, building codes, and environmental regulations.
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Legal Counsel
It is important to have legal counsel review the lease extension terms to ensure they are fair and compliant with California law. An attorney can also help negotiate the terms of the extension to protect the tenant's interests.
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Mutual Agreement
A commercial lease extension in California requires a mutual agreement between the landlord and the tenant. Both parties should review and sign the extension agreement before it becomes legally binding.
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Record Keeping
All lease extensions should be kept in writing and maintained as legal records. This is important for both the landlord and the tenant to have a clear record of the terms and conditions of the lease extension.
Tips for Negotiating a Favorable Lease Extension
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Start Early
Begin the negotiation process well before the current lease expires to give yourself plenty of time to negotiate and review the terms.
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Research the Market
Research the current market rates for similar commercial spaces in the area to ensure the rent increase is reasonable and in line with the current market rates.
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Identify Your Priorities
Determine what is most important to you in the lease extension negotiation, such as rent, lease term, or tenant improvements. This will help you negotiate effectively.
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Make a Counteroffer
If you receive an initial offer that is not favorable, make a counteroffer with specific terms and conditions that are more favorable to you.
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Seek Legal Advice
It is important to have a lawyer review the lease extension agreement to ensure it is fair and compliant with California law.
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Use Leverage
If you are a long-term tenant with a good track record, you may have more leverage in negotiating favorable terms.
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Be Flexible
Be open to compromise and be willing to negotiate on some terms in exchange for favorable terms on others.
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Maintain Good Communication
Maintain open and clear communication with the landlord or property manager throughout the negotiation process to build trust and avoid misunderstandings.
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Key Terms for a Commercial Lease Extension
- Renewal Option: A renewal option is a provision in the lease agreement that allows the tenant to extend the lease term for an additional period of time, usually at a predetermined rent rate.
- Rent Increase: The lease extension agreement may include provisions for rent increases, which can be based on factors such as inflation or the current market rates for similar commercial spaces.
- Length of Extension: The lease extension agreement should clearly state the length of the extension period, including the start and end dates.
- Tenant Improvements: The lease extension may provide tenant improvements or modifications to the commercial space. The terms of these improvements, such as who will pay for them, should be spelled out in the agreement.
- Legal Requirements: The lease extension agreement should comply with all legal requirements under California law, such as rent control or tenant rights. It is important to have a lawyer review the agreement to ensure compliance with applicable laws and regulations.
Final Thoughts on a Commercial Lease Extension
A commercial lease extension in California can be a useful tool for landlords and tenants interested in extending a commercial lease beyond its original term. By extending the lease, landlords can maintain a reliable source of income from their commercial property. At the same time, tenants can continue to operate their businesses without the expense and inconvenience of finding new space.
However, it is important for both landlords and tenants to carefully consider the terms of the lease extension before agreeing. It may include negotiating rent increases, changes to the extension length, or other modifications to the lease terms. Additionally, it is important to ensure that the lease extension complies with all relevant laws and regulations and to seek the advice of a legal professional if necessary.
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Meet some of our Commercial Lease Extension Lawyers
Matthew H.
We are a boutique firm located in San Diego that handles civil litigation with a couple other areas of law.
Elizabeth W.
Liz is an experienced insurance professional, having worked with carriers and brokers for over 10 years. She can review or draft a variety of commercial agreements and is here to help your business. Specialties include: Master Service Agreements, business process outsourcing, marketing and partnership agreements, broker agreements, business associate agreements, and NDAs.
December 5, 2021
James A.
James Allen is a native of Birmingham, Alabama. Mr. Allen has a considerable amount of experience in the areas of domestic relations, criminal law, family law, and general civil litigation.
December 6, 2021
Emily Y.
I am available to advise on entity formation, contracts, and employment policies. I am also comfortable litigating business disputes including partnership disputes and employment cases. Prior to opening my current practice, I worked for several years in a small civil litigation practice focused on employment matters and civil litigation. I attended law school at the University of Colorado, and I went to the University of British Columbia for my undergraduate education.
December 13, 2021
Philip M.
I have been a freelance attorney for several years and have many of my clients returning to me for continued work because of the quality I produce.
January 4, 2022
Amy Sue L.
Ms. Leavens is a corporate attorney with 10 years of experience as the General Counsel, Chief Compliance Officer and Corporate Secretary of a Congressionally chartered, non-profit corporation, and more than 20 years of experience as an advisor to executive officers and boards of directors in for-profit and non-profit organizations. She has substantial experience within in-house legal departments managing cross-functional teams comprised of multiple business units and attorneys on large-scale mission critical projects, and within a global law firm as a manager of public and private, domestic and international, multi-party business transactions. She has unique experience implementing government-sponsored business initiatives. Ms. Leavens was honored in 2015 as one of Washington, D.C.’s Top Corporate Counsel by Bisnow and the Association of Corporate Counsel; nominated in 2014 for the Association of Corporate Counsel (WMACCA) Outstanding Chief Legal Officer Award; and the recipient in 2014 of WMACCA’s Community Service Award.
January 5, 2022
Elizabeth V.
Most of my career has been as in-house counsel for technology companies. My responsibilities included managing all vendor/procurement contracts and compliance, customer/partner/reseller contracts and compliance, data security/privacy compliance and incident responses, HR/employment issues, and legal operations. I am very comfortable negotiating Commercial Contracts, Vendor Agreements, and Procurement Contracts for goods, services, and licensing, as well as addressing Employment & Labor, Intellectual Property, and Data Privacy issues and compliance. I specialized and have a certificate in IP in law school and continued to develop in that area as in-house counsel for Interactive Intelligence, Genesys, which are unified communication companies, and KAR Global in the automobile digital services lines of business.
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