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Opportunities for Landlord Abound When Tenant Exercises Renewal Option
When a tenant exercises an option to renew its lease, the landlord's usual inclination is to save time and effort by treating the tenant's notice letter as sufficient to accomplish the renewal. This inclination should be strongly resisted ' not only because such a notice may be inadequate, but also because the landlord may be missing out on an opportunity to update the original lease and often improve upon the existing documentation. This is especially true where the renewal is at 'market,' which offers the landlord the possibility to argue that certain changes are necessary to conform to market conditions.
A common problem is that the parties to the original lease have changed, and the changes have not been adequately addressed in the past. Therefore, the first item the amendment should address is the route the lease has taken to end up with the parties who are signing the amendment. Often, there have been assignments, mergers, or name changes, and the parties to the original lease are not the parties who need to sign the renewal documents. The amendment should trace the chain of transfers and explain how the parties ended up being who they are. This presents an opportunity for the landlord to require formal documentation from the tenant to justify internal transfers and to verify that the party now in possession has the financing wherewithal to support the lease. Often, the landlord will conclude that the current party in possession needs to come up with an additional security deposit or a guaranty to the lease. The landlord should have any existing guarantor reaffirm that the guaranty remains in full force and effect through the extension period and that the guarantor consents to and acknowledges all of the terms and conditions of the amendment.
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