Nail Down Automatic Renewal’s Specific Terms

September 21, 2017
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If a right to renew your lease is very valuable to you, you might agree to an automatic renewal clause if that’s what the owner insists on. But if you agree to a vague automatic renewal clause, it can work against you.

A primary concern should be getting the sole right to cancel the automatic renewal. Also, negotiate rent for the renewal term when you’re negotiating the specifics of the initial lease term, and either specify the dollar amount of the rent, or tie the rent to a consumer price index. Doing so will provide a more solid basis for the renewal rent projection. It will be difficult for you to make an informed decision about the cancellation date if the renewal rent is based on “fair market rent” or some similarly unpredictable standard. If you’re not able to avoid a fair market rent formula, negotiate a cap on the rent increases.

Similarly, operating expenses and taxes should be subject to the same caps, if any, that the lease imposes on the tenant’s initial term. Finally, consider including a refurbishment and redecoration allowance. Owners may be more likely to give this to a tenant when the lease provides for an automatic renewal.