How to Prevent Option Exercise Mistakes
Q: I want to bargain effectively for lease options, such as the right to extend my lease. How do I do this effectively, and make sure I cover all of my bases too?
A: Often the hard-won result of negotiations between you or your representative and the building’s owner, lease options entitle commercial tenants to valuable rights, like the right to renew or extend the lease. But a tenant can lose those rights inadvertently if it’s not careful. How can you lessen your chances of unintentionally losing the options included in your lease? Use these five tips for effectively exercising options:
Tip #1: Keep track of key dates/deadlines. It’s critical that you keep track of key option dates and deadlines. Large tenants generally keep “tickler” files for such things, but smaller tenants may use less formal measures, such as calendar notations, whether on paper, online, or using calendar software. You need to know when key option dates are coming up, so you can begin to evaluate whether or not it’s in your best interests to exercise the option. And if you can’t rely on the owner to remind you, you need another way to make sure you remember the option deadline. Otherwise, you could lose your option.
Tip #2: Exercise option early. Don’t wait until the last minute to exercise your option—do it early. An option clause typically gives a window of time during which you may exercise the option, say, no sooner than 18 months or later than 12 months before the end of the lease term. The earlier in that window you exercise the option, the better. Then if there’s a problem—say, you find that the owner didn’t get your notice or that the notice was defective—you’ll still have time to send it again or correct the defect before the option deadline.
Tip #3: Comply with all notice requirements. When exercising the option, make sure that you comply with all relevant notice requirements—not just those in the option clause. While you should certainly read the option clause carefully before you exercise your option, you should also read the notice clause just as carefully. The option clause will typically say little about how you must serve the option notice and to whom you must send it, so you’ll need to look to the notice clause for that information. If you don’t, you may, for example, mistakenly personally serve the option notice on the owner, rather than sending it by certified mail, or send it to the wrong person. Then, the owner may argue—and a court may agree—that the notice was defective. Before you send the notice, make sure you consider any “change of address” notices the owner might have sent you or any other information you may have about a new address for the owner.
Tip #4: Get confirmation that option notice was received. Get confirmation that the owner got your option notice. If you send the notice by mail, you can get such confirmation by sending the notice “return receipt requested” or by simply asking the owner to confirm that it got your notice. If you deliver the notice in person, have the owner sign a receipt acknowledging receipt of the notice. If the owner refuses to do so, get proof of delivery from a third party, such as the messenger service. Once you have confirmation, the owner won’t be able to argue that it didn’t get your option notice. If your lease allows you to—and it typically will—ask the owner to sign an estoppel certificate confirming the terms of your lease, including the fact that you exercised certain options. Doing so will confirm not only that the owner got your notice but also that it acknowledges that you exercised your option.
Tip #5: Don’t wait to sue, if necessary. If a dispute arises between you and the owner over whether or not you effectively exercised your option and you can’t quickly resolve the dispute, don’t wait to sue the owner. Instead, do so as soon as it’s clear that the dispute can’t be amicably resolved. Then you’ll avoid, say, being forced to vacate your space while your dispute is in court—giving the owner a chance to move a new tenant into your space.
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