Renewing Your Lease

As many of our medical and dental clients know the length of their lease is one of the most important aspects of the lease. For dentists the length of the lease and the specific clauses in the lease will add significant value to the dental practice. When entering into a new lease there is generally

As many of our medical and dental clients know the length of their lease is one of the most important aspects of the lease. For dentists the length of the lease and the specific clauses in the lease will add significant value to the dental practice. When entering into a new lease there is generally an initial term of either 5 or 10 years. Most leases contain a further option in favor of the tenant to renew or extend the lease. Generally the renewals are for 5 additional years each.

Excercising the Option to Renew/Extend

Generally, in order to ensure that the option to renew is valid you must ensure that you have not defaulted on your lease at any time during the term. The lease will often have the following wording or variations on the following:

“If the Tenant duly pays all rents and performs all the covenants on the part of the Tenant to be paid and performed hereunder, the Tenant shall have the option to renew this Lease…”

What this means is that your option to renew the lease is conditional upon you having complied with the terms of the lease. If you haven’t complied or are in default these options may be void.

It is crucial that as the tenant you remember to exercise your option in a timely fashion in compliance with the timelines set out in the lease. Neither your accountant nor your lawyer is going to do this for you. Generally a tenant will be required to provide six (6) months prior written notice to the landlord of its intention to exercise the renewal. A common clause you may see in your lease is as follows:

“In order to exercise the option to renew, the Tenant must give the Landlord prior written notice at least six (6) months prior to the end of the Term that the Tenant exercises its option to renew this Lease.”

In this situation the tenant must give the landlord written notice of its intention to exercise the renewal. If you fail to give the landlord notice the lease may state that the options may are void. If the lease says written you cannot just speak with the landlord to inform them, you must provide written notice. An e-mail exercise may also not be adequate. If the lease says it must be given by registered mail then you must give notice by registered mail. At the time of your exercising of the option you will most likely not know the base/minimum rent to be paid in the option term unless you start negotiating with the landlord prior to exercising your option – but do not forget to exercise it in the manner specified in the lease.

If you do not exercise the option in the manner as provided for in the Lease the Landlord may still permit you to renew but may insist on negative clauses be inserted in the lease; e.g. The landlord may want to delete any exclusivities in the lease or insert relocation, demolition or sale clauses.

Rent on your Renewal/Extension

On renewal or extension of the lease the rent is usually negotiated between the Landlord and the Tenant. The Lease should have a clause setting out on what basis the rent will be set, such as:

“The rental rate on renewal shall be agreed upon between Landlord and Tenant negotiating in good faith and shall be based upon the prevailing market rental rates for substantially similar space, in a substantially similar building in the geographical territory in which the Premises is located.”

In most circumstances the lease will have a clause that states that if the landlord and tenant cannot agree to a base rent by a certain time period the rent will be decided by arbitration.

Amendments

You can often negotiate amendments to your lease at the time of exercising (but do so before the time is up for exercising). Some of the amendments could include:

Further options to renew;
Better assignment clauses to take into account any future intention to sell your practice;
If you have incorporated since the time of entering into the lease you would want to utilize the renewal to insert your professional corporation as tenant (although the landlord will most likely want you to guarantee/indemnify the landlord);
Any clause that may be specific to you as tenant, e.g. Often times leases give the tenant exclusivity only if the named tenant is still the tenant – if this is the case you should request the specific clause add “and its permitted assigns”.

Conclusion

If there is a takeaway from this blog post please ensure that you exercise your renewal in a timely manner in compliance with the wording in the lease or you risk losing your right to the options to extend/renew your lease. If you would like Kutner Law LLP to assist with your renewal please do not hesitate to contact us. This blog post is for informational purposes only and should not be construed as legal advice.