Commercial real estate tenants now want a space that will adapt with the needs of their business and can be handed back if it no longer suits their purpose, McGuireWoods London partner Callum Hassall wrote in a Sept. 12, 2024, article for BE News, a digital news outlet covering the entire built environmental industry – spanning commercial property, the residential sector, construction, architecture, planning and engineering.
In the aftermath of the global pandemic, commercial tenants are pushing for shorter leases with options to renew, wrote Hassall, a partner in the firm’s Real Estate & Land Use Department. But, he cautioned, “tenants should tread carefully as a poorly drafted clause may not work as the parties intended.”
Hassall outlined key points tenants should keep in mind when considering an option to renew. Most options to renew require the tenant to exercise the option within a prescribed time period, he noted. Tenants should pay close attention to conditional elements of an option clause “to make sure that there is no room for debate between the landlord and the tenant on the question of whether conditions have been complied with,” he added. Hassall also explained that a tenant’s notice of intent to renew is often irrevocable.
Because renewal leases often are granted on the same terms as existing leases, Hassall stressed that a tenant should reach out to their landlord in advance to explain that it is considering a renewal lease but will require some of the existing lease terms to be revisited. Finally, he touched upon complexities regarding compliance with statutory procedures.