How to Avoid Renewal Rent Trap
Q: I’m negotiating a renewal option in my lease with the owner of my space, which is a valuable right to me. I’ve heard that the downside is that many renewal options don’t specify what the renewal rent will be; they refer only to “the fair market rate.” I’m concerned that I’ll exercise your renewal option, only to find out afterwards that the owner plans to charge me a higher renewal rent than I expected—and I would be stuck paying it. How can I avoid this?
A: To prevent this situation, get the right to reject the owner’s proposed renewal rent and cancel your exercise of the renewal option if the owner’s proposed figure is higher than you expected. To do this, ask your attorney about adding this language to the lease’s renewal option clause giving you that right.
Model Lease Language
Within thirty (30) days after Tenant exercises its Renewal Option, Landlord will deliver written notice to Tenant (“Landlord’s Renewal Notice”) of its good-faith determination of Minimum Rent for the Option Term (“Renewal Rent”), which shall be based upon [insert method to be used to determine the renewal rent, e.g., fair market value for comparable space in the building or center].
Within ten (10) business days after Tenant’s receipt of Landlord’s Renewal Notice, Tenant may withdraw Tenant’s exercise of the Renewal Option in the Tenant’s sole discretion, whereupon the Renewal Option and Tenant’s exercise of the Renewal Option shall be void, and the Lease shall expire for all purposes as if Tenant had not exercised the Renewal Option.