- Posted by Chris Carmen
- On August 10, 2017
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 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 — and money.
I was reminded recently of a mistake that I have repeatedly seen over the years of providing tenants with commercial real estate advisory services: A tenant missed one or more of the critical lease dates contained in their office lease.
What are Critical Lease Dates?
Critical lease dates are points in time within commercial lease where the tenant or landlord must do something by a specific date. An example of a critical date is contained in an Option to Renew lease clause, which gives the tenant the right to renew its lease. The critical date is the date the tenant must give notice to landlord of its intent to renew the lease. If the tenant misses this date…. it loses its right to renew the lease.
The Notice Date is a critical date, and missing it will materially affect the tenant’s rights under its lease.
Additional Critical Dates You Need To Know:
- Notice of Tenant’s Right to Expand its lease space
- Notice of Tenant’s Right to Downsize its lease space
- Tenant’s Right to Terminate the Lease
Need critical lease notifications? Get started here for free.
When a tenant has one or more of these rights contained in their office lease, there will most certainly be a date by which the tenant will have to provide the landlord with notice of their intent to exercise their rights for each particular right. Failing to do so will cause the tenant’s right to become void.
Most Businesses Overlook These Notices at Their Peril
Owners and managers are focused on their core day-to-day business, as they should be….and once they’ve completed a lease for office space or industrial property, they figuratively put the contract 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 office lease contract 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 will better suit the business.
As a business owner, I completely understand. I too am guilty of focusing on my core business of helping my tenant clients, instead of administrative items that are out of sight, out of mind.
Too often the owner or manager will review the lease and learn they have missed the date they were supposed to provide 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.
Is That A Risk You’re Willing To Take?
Landlords have their own businesses to worry about and often have other plans to satisfy their own objectives. What if your building landlord has a larger tenant who wants to expand into your office space to accommodate their growth goals? Think it will never happen? One of my best clients just recently expanded into office space occupied by a tenant that had no plans to move out of the building, but didn’t have the right to stay after its lease term expired. Or maybe the landlord wants to lease the space to another tenant the landlord believes will add more value to the building. What then?
The answer is easy: you’re out of luck….and it’s time to start packing and calling a moving company. Whether you like it or not, if you miss your Notice Date to renew your lease, the landlord owes you nothing and you’ll be left scrambling. Even if the landlord wants you to stay in the building, if you’ve missed the Notice Date on your renewal option, it’s probably too late to negotiate as if you might leave the building and you’ve effectively put yourself into a corner with respect to negotiating favorable terms on your lease renewal.
Lease Options and Rights are One-Way Streets, in Favor of the Tenant — Landlords Want You to Miss Them
Tenants who miss critical dates lose their rights under a lease and gives landlords better leverage when negotiation with the tenant. That means more freedom to do what they want — like charge a higher rent or add expenses, or extend the lease for a term that is too long or too short.
This has become an important issue over the past few years as the economy has continued to grow, causing office building occupancies to increase sharply, creating a low supply of space in many markets with continued strong demand, essentially creating a ‘landlord’s market’. A landlord’s market leads to 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 they wish to do so. Missing the Notice date allows the landlord to dictate the terms of the lease renewal at best, or at worse, terminate the lease and replace the tenant with what they believe will be a better tenant.
It will never cease to amaze me how tenants fight tooth and nail for these rights when negotiating a new lease, 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.
Here’s What You Can Do
If you have the administrative bandwidth available to do so, conduct an annual review of your lease. Review these key dates and discuss anything that perhaps no longer makes sense for your business. Set a few reminders on your office calendar if there is a critical date approaching so you can contact your landlord with direction on the particular option or right. Warning: it may not be easy to engage your landlord in these discussions, because they often will employ a delay tactic, with the hope that the tenant will overlook the notice date.
If you either lack the resources or inclination to keep track of these dates on your own, you can take advantage of the CARMEN Critical Dates Service at no charge. Just input the key dates and the email address you’d like to use for notifications, and we will take care of the heavy lifting for you. If you aren’t sure what to do, please contact us, and we will audit your lease for you in order to pull out those dates….and we’re glad to do so at no charge.