Losing Your Lease is Easier Than You Think

09.08.2016

I chuckle every time I see on TV or hear on the radio a furniture company or another retailer advertising a huge moving sale because they “lost their lease” and must relocate (or go out of business). So did they misplace the file cabinet it was filed in or did someone break in and steal the lease? Of course neither! More than likely, the landlord, for any number of reasons, did not wish to renew the lease. This comes as a huge surprise to the tenant as they seem to think they can stay as long as they keep paying the rent on time. NOT NECESSARILY TRUE.

The hard lesson learned by the tenant is that there was probably no “option to renew” language in the lease agreement signed years ago. An option to renew benefits to the tenant (a concession given by the landlord) and gives the tenant the ability to “control” their leased space by renewing the lease typically at the “than” fair market rent as defined in the lease. This is particularly important for retail tenants as location is paramount to its success. It is also important to office and industrial tenants as their current location may work well for their business purpose and may be centrally located for attracting and retaining employees.

The bottom line is leases can go both ways if there is no renewal option. Upon the termination of the lease, with both parties fulfilling their obligations as specified in the lease, either party can end the landlord-tenant relationship. This means should the landlord desire, the tenant must move out of the space (even if the tenant does not want to move) because they have no further rights to use the space.

Tom Fields has negotiated nearly 1,600 commercial lease agreements in his 31-year career as a commercial real estate broker in the Oklahoma City area.

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