commercial real estate · Malls · Retail leases · Uncategorized

Extending a lease term – by exercise of option or amendment

Exercising an option that was granted in a lease with no change in terms should be a fairly simple exercise as specifically defined in the lease – often sending notice to the landlord on the intent to exercise with no additional action required by any party. The lease continues.

However, sometimes the parties overcomplicate the issue and produce unintended consequences. For example, I was just abstracting a lease that commenced in 2010. The lease granted one five year option at $27.50/sf to be exercised by giving notice to the landlord 210 days before the expiration of the term. The expiration of the term was 10/31/15. Notice would have been required by the beginning of April. In July 2015, an amendment was executed extending the term from 11/1/15-10/31/20 at $27.50/sf. The amendment included typical language – “Except as expressly modified and amended by this Amendment, the provisions of the Lease shall remain in full force and effect…” Therefore, despite the fact that the tenant had not exercised the option on a timely basis, the terms of the lease remain in effect. The term was extended.  The amendment contained no language stating that the amendment was an exercise of the option. No language stating that the tenant shall have no further rights to extend the term.  Therefore, while likely not the intent, the tenant can claim that it has the right to extend the term for five years commencing 11/1/20 at $27.50/sf. Sometimes, you can get around this if the option form the lease is for specific dates or years. But in this case, no such luck.

It is imperative to think through how the language in an amendment affects  the original lease.

2 thoughts on “Extending a lease term – by exercise of option or amendment

  1. In this particular case, it was extending by amendment. The amendment should have included a clause that stated something to the effect of “The tenant shall have no further right to extend the term.” That would have conclusively eliminated the option. But, in a typical exercise of option where the rent is defined for the option period, there is no need to execute an amendment. The lease will typically include a line that states something to the effect of “the tenant will notify the landlord of its intent to extend the term with written notice 180 days days before the expiration of the then current term. All other terms and conditions of the lease will remain the same except that tenant shall have no further right to extend the term.”
    Occasionally, you will see a requirement that an amendment is required to extend the term, but that requirement will be in the lease. And, if the rent for the option period is not specifically defined – it uses then-current market rent or some percentage of then-current market rent – an amendment will typically be required. But, the amendment will then include the “tenant will have no further right to extend the term” language.

    Like

Leave a Reply to Jack Nugent Cancel reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s