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What Is a Lease Extension Agreement?
A lease extension agreement is a legal contract that allows an existing tenant to continue to reside on the property for an extended period of time after the initial terms of their original lease agreement. You will often see lease extension agreement requests when a tenant cannot find adequate housing before their mandatory move-out date.
In commercial property rentals, a lease extension agreement allows the business to remain in operation on the property after the original assignment of lease.
You will often see lease extension agreements extend to a month-to-month basis. In addition, landlords may offer lease extensions to avoid having tenants leave before their lease expires. Lease extensions can also be requested by tenants.
This article defines lease extension and how it works.
What’s Included in a Lease Extension Agreement?
A lease extension can apply to residential or commercial real estate properties. It allows tenants to remain on premises after their original lease has recently expired.
A lawyer should review this agreement to ensure that it is fair and legally binding for both parties.
A lease extension agreement template can cover a number of different factors, which you may add or remove depending on your situation. These are some of the most relevant parts to include in a general lease agreement contract.
Part 1. Details About the Leased Premises
This section should specify which premises are being leased and which properties a lease agreement extends to. You may include the address and describe the property in complete detail, including its square footage and associated areas, e.g., a parking space/garage, access roads, warehouse, etc.
Both rental and commercial lease agreements should include a complete and accurate description of the property.
Part 2. Construction by Landlord
This section should state whether any further construction will be made to the property by the landlord. If not, the landlord should include a statement that they will not make any additions or modifications to the property’s structure.
Part 3. Construction by Tenant
In this section, the landlord may detail what modifications or improvements a tenant may make to the property for their improved quality of living. However, a landlord needs to note that the tenant will be fully responsible for the cost of any improvements, and they must receive written approval from the landlord.
Make sure that you also include a deadline for landlord approval, no more than 5 to 7 business days.
Finally, ensure that any permissible modifications comply with federal, local, state, and building and fire codes. The writer should also clarify that the tenant cannot take out liens for construction labor or building materials.
Part 4. Property Equipment, Partitions, Machinery, and Fixtures
This portion of a lease agreement details what types of machinery, fixtures, equipment, and partitions the tenant can modify, add or remove from the premises.
If any additions or improvements are made, will they belong to the tenant and be removed after leaving? Or, will they remain the landlord's property regardless of who paid for their installation?
This part of a lease establishes boundaries for the client regarding how much they can change a property’s essential equipment, like an HVAC system, plumbing, and light fixtures.
Image via Pexels by Ketut Subiyanto
Part 5. Condition of Lease Agreement Termination
The issuer of a lease agreement should include clear instructions on what the tenant must do at the time of termination. The move-out date may or may not be included depending on the terms of a lease agreement, i.e., month-to-month or set expiration.
The conditions of lease termination can also further clarify what property fixtures, equipment, and improvements are to be left to the landlord’s possession.
Part 6. Reservation of Landlord’s Rights
A lease agreement should include a section that explains the landlord’s rights to modify, upgrade, repair, or replace fixtures and equipment. This section should consist of heating, ventilation, air conditioning machinery, and plumbing. This must be done in a manner that is not disruptive to the tenant’s life and does not leave their premises unusable, partially or entirely, for any period of time.
Part 7. Displays by Landlord (Before Lease Termination)
The landlord may wish to advertise a property as available for rent and show it to prospective tenants before the end of a lease agreement.
In this section, the landlord will define how they may display the property for advertising purposes. This includes if they show the property and how soon they will notify tenants before any advertisements are posted or conducting property tours.
Additional articles within a lease agreement should include:
- Indemnification of landlord liability
- Permissible conduct of business
- Lease terms for the duration of the agreement
- Rent and its subjection to change
- Additional rent or fees that a tenant may incur
- Utilities, taxes, license fees, and insurance requirements
A net lease requires the tenant to pay all of the property’s taxes, insurance premiums, maintenance fees, and base rent. A percentage lease requires the business owner to pay rent and a percentage of the revenue they earn on the premises.
When Do You Need a Lease Extension Agreement?
You may need a lease extension agreement if you want to remain in a property for longer than your original lease, but you do not wish to renew the lease entirely.
New leases may require you to stay on the premises for 12 months or more, but a lease addendum can extend your lease by several months or even place it on a month-to-month basis.
Lease extensions can help you in-between housing. For example, you may already have a new property secured. Still, your lease may not start before or immediately after the end of your lease. An extension could help you maintain stable housing until your new lease begins.
For business owners, lease extension agreements can help them avoid significant profit losses when they move their establishments to a new location. As they prepare to move into their new location, they can continue operating out of their existing building until their new lease begins or they have completed transferring all their equipment to a new property.
Lease Renewal vs. Lease Extension
A lease renewal is a new agreement. Renewing a lease means the terms may change, rent may increase, and additional requirements or modifications may be made to the arrangement.
A lease extension is an addendum to a lease, meaning it extends the original lease terms but does not modify them. It’s also important to note that in terms of a lease vs. rent agreement, the terms also differ as well.
Here is an article for landlords that explains the renewal process, including when and when not to renew a tenant’s lease.
What Types of Leases Typically Get Extended?
Residential and commercial property leases are usually extended the most. However, many renewal agreements in managed residential apartment buildings may also offer the tenant the option to extend their lease or resort to a month-to-month arrangement for a higher rent price.
Car leases may also be extended. A car lease extension for a car can help a renter maintain a vehicle monthly until they arrange for a new one.
This article explains car leasing extensions and other strategies renters may use to save money.
Lease Extension Agreements to Month-to-Month
A month-to-month lease extension agreement can be for a set period of time, e.g., 6 months, or on a month-to-month basis. For example, a month-to-month rental lease agreement allows the landlord to change the rent price while permitting the tenant to remain on the premises.
Many landlords will use this strategy to increase rent prices for tenants who need to stay on the property as they transition between leases between their current building and a new one.
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