As a commercial property owner, you need to decide what type of lease terms you’re going to offer to your tenants (lessees). You may offer contracts with different leasing periods based on factors individual to the lessees, such as how long they’ve been in business and what type of company they operate.
Commercial leases can run anywhere from 30 days to more than 30 years. Most are somewhere in the middle.
Fixed end date, automatic renewal and other options
If a lease has a specific, or fixed, end date, it gives some certainty to both the lessor and lessee. Typically all of the terms of the lease remain unchanged throughout the leasing period. At the end of that period, the lease ends. No further notice by either the lessor or lessee is required.
Some leases have an extension option. The lease is for a fixed period. However, at the end of that period, the lessee has the option to extend it for a specific period. For example, a lessee may sign a five-year lease with an option to renew it for another five years. Typically, that option involves a rent increase that’s already written into the lease.
Another option is to have a lease that renews automatically unless either the lessor or lessee gives the other one notice that they’re not going to renew it. Many 12-month leases have this option. It allows lessees to re-evaluate whether this is a good location for their business and to look at the health of their business overall. It also allows commercial property owners the option to bring in another lessee who may attract more people to the property or who may just be less problematic.
That original lease contract is crucial to a tenant-landlord relationship. However, lease terms can always be renegotiated if the parties agree. It’s always wise to have an experienced attorney help you when you draw up, sign or renegotiate any contract to ensure that you’re getting the best possible terms and that you understand precisely what you’re agreeing to.