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Granting Expansion Options to Tenants

By Matthew B. Mattingly

Flexibility is an important consideration for tenants when approaching a commercial lease. That has likely never been more true than it is in today's market, as tenants have one eye on a prosperous future, but still have the sting of the recent economic downturn fresh in their minds. One way that tenants seek that flexibility is through expansion rights. Whether in the form of pure expansion rights, rights of first offer or rights of first refusal, such rights can provide an enticing incentive for tenants who desire long-term flexibility, but either cannot predict the amount of space they will need long term, or cannot commit to that much space at the time of lease execution. When properly drafted, such expansion rights should not be a significant detriment to the landlord, making them the perfect incentive for both sides. Nonetheless, a prudent landlord must consider a number of factors when granting expansion rights to a tenant.

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