Chris Carmen / June 7, 2019
As you might imagine, over the 24 years I’ve owned and operated my Indianapolis based tenant representation firm, CARMEN Commercial Real Estate Services, I’ve had the opportunity to see firsthand the many missteps tenants take with respect to office leases. As a matter of respect to the business community that has provided me with a livelihood during my career, I won’t confess to how many of these errors could have been avoided, saving business owners and managers a lot of sleepless nights and angst.
I was reminded recently of an error that I have seen repeatedly over the years of providing tenants with advisory services: A tenant’s missing the critical lease dates contained in its office lease.
You ask: what are “critical lease dates”? Critical lease dates are dates within a lease that something must occur, either being initiated by the Landlord or the Tenant. For example: when a tenant has an option to renew its lease, it will always have a Notice Date, by which if the Tenant elects to renew its lease, it must provide the Landlord notice of its intent to do so. Failing to provide notice within the timeframe specified, as spelled out in the lease, will cause the tenant’s option to renew the lease to lapse, therefore, becoming null and void.
The Notice Date is a critical date, and missing it, can materially affect the tenant’s rights under its lease. Some other critical dates are: Notice of a tenant’s intent to exercise its Right to Expand; its Right to Downsize; or even a tenant’s Right to Terminate the Lease. When a tenant has one or more of these rights contained in its office lease, it most certainly will have a date by which the tenant will have to provide the landlord with notice of its intent to exercise its respective right. Failing to do so will cause the tenant’s right to become void.
But business owners or managers are focused on their core day-to-day business and once they’ve completed a lease for office space, they figuratively put the lease in the drawer and move-on. The last thing they’re thinking about a few or many years downstream is “Hey, when do I need to provide my landlord with notice that I want to renew my lease”. More likely, the person handling the lease is somehow reminded the lease is going to expire in six months and they better figure out what they’re going to do…extend the lease for additional years or relocate to office space that better suit the business. As a business owner, I completely understand. I too am guilty of focusing on my core business…helping my tenant clients, instead of administrative items that are out of sight, out of mind.
Too often the owner or manager reviews the lease and learns it has missed the date it was supposed to provide the landlord with notice of its intent to renew the lease. Assuming the landlord would like the business to remain in its office space for another term, then no harm, no foul. However, if the landlord has other plans, such as using the office space to accommodate the growing needs of a larger tenant in the building or leasing the space to a tenant the landlord believes will add more value to the building, then the business is out of luck and they better begin packing the moving boxes because the landlord can cause them to move out of the building, whether they like it or not.
Here’s the best way to look at lease options or rights: They are one-way rights in favor of the tenant. Therefore, in the landlord’s opinion, it’s a good thing when a tenant misses a critical date, thus losing its right, giving the landlord better negotiation leverage with the tenant and more freedom to do what they wish with respect to the tenant.
Over the past few years, this has become an important issue because office building occupancies have increased sharply, causing a landlord’s market….. less supply and greater demand for the space, and tenants scrambling to find enough space to operate their businesses. With an office lease Renewal Option, it guarantees the Tenant can renew the lease if it wishes to do so. Missing the Notice date, allows the landlord to terminate the lease and replace the tenant with a better tenant.
What will never cease to amaze me, is how during the leasing process, tenants will fight tooth and nail for these rights, yet so easily allow them to lapse. Whether it be an Option to Renew the lease or the right to expand the offices, whatever the case, tenants go to great lengths to negotiate these rights in their office leases. Yet, they continually fail to be reminded of the critical dates when these options must be triggered and consequently lose them.
Chris Carmen, President
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