At National Lease Advisors our team reviews thousands of lease documents each year. I recently took the time to sit down with my partners to discuss the amendments we review and how valuable a well written document can be for our clients. We have seen how beneficial amendments can be in providing clarity and we have also seen how some documents fall short in addressing critical components that prove to be costly to the tenant.
Whether you are a tenant negotiating your own amendment, a broker, or an attorney assisting a client, here are some tips we have come up with to ensure your next amendment helps provide the clarity and protections you or your client needs.
1. Take the Opportunity to Recite and Confirm Key Lease Provisions
Critical key dates such as the commencement and expiration dates of the original lease term can sometimes be estimates dependent upon when the space is ready for move in. If these dates were not reaffirmed with a Commencement Memorandum or anything of the like, tenants can be playing a guessing game trying to figure out when the lease is going to expire. Using amendments to memorialize these important dates so you are on the same page as your landlord is good practice to ensure you do not have conflicting positions and miss a key date.
Similarly, if your lease is not clear as to the square footage of the premises you occupy, or if you exercised a reduction, relocation or expansion option, a new Amendment is a great opportunity to memorialize your current square footage.
2. Don’t Forget to Reset the Base Year
If your lease agreement includes a Base Year for the calculation of operating expenses, it is critical that you update this benchmark on a lease extension.
Samantha Mitchum, a Senior Account Manager at National Lease Advisors, knows how critical this can be. “We see many clients who forget to negotiate a Base Year reset and they unintentionally get stuck continuing to pay excess operating expenses at the commencement of the extended term. There is no reason for a landlord to push back on an update to the base year, but the tenant or their representative needs to make the request for it to happen.”
3. Request a New Renewal Option
Requesting a new renewal option is a common oversight when a lease is extended. This might be because most tenants rightfully prefer to negotiate new terms rather than exercise an option that could commit them before the economic terms are known. However, the renewal option can provide insurance in the event the landlord has other tenants interested in your space. Smaller office users or retail tenants will often lose out to other tenants that may be willing to pay more for the space or current tenants that were hoping to expand into your space. So while you may not plan on exercising an option, it is important to always ask for additional renewal options when you are entering into an amendment.
4. Reaffirm if Options and Other Rights are still Available
Sometimes lease language regarding your rights and various options can be vague, and it is difficult to decipher if these offers and options only apply to the original term or continual extensions of the term. Having explicit language that reaffirms these options are still available is an important protection and can save you from having to decipher confusing lease language, or worse yet have conflicting views with your landlord in the future. Some examples of these types of rights or offers include Right of First Offer, Right of First Refusal, Option to Expand, Option to Contract, etc.
5. Memorialize the Current Notice Addresses
Typically notice addresses are stipulated in the original Lease, but it is very common for notice addresses to change over the course of the term. If there was an update to notice addresses, for either the tenant or the landlord, it is good practice to reaffirm addresses in subsequent Amendments.
Kelly Muna, one of my partners at National Lease Advisors, experienced the importance of memorializing notice addresses with a recent project that required reaching out to over 400 landlords, “While an outreach to this many landlords can be a significant undertaking under normal circumstances, we found a lot of the notice information on file that was maintained by the previous lease administration provider was outdated or inaccurate, which resulted in a lot of return mail that we had to work through. The problem is updates received during the term of a lease can slip through the cracks, where lease documents remain the primary source of information. Updating, or even reaffirming the parties contact information clearly documented in amendments is a good business practice.”
6. Can Your Space Use a Refresh? – Ask for a Refurbishment Allowance
One concession that many tenants miss out on during a lease extension is a refurbishment allowance. It is important to understand that while landlords have target rents they are trying to achieve to satisfy investors and lenders, many also budget refurbishments costs that never get requested by the tenant.
A refurbishment allowance is a great way to freshen up your space, and can be used for paint touch ups, carpet replacements, and many other small refurbishments. This is not only advantageous to you as a tenant, but the landlord benefits as well because they are improving their asset, and many of the improvements will last beyond the length of the term of your lease.
7. Address Newfound Knowledge with New Clauses
The world changes and much knowledge is gained over the term of a lease. An amendment is a great time to address items that were not top of mind when the original lease was signed. One example is site-specific concerns. Has the landlord been lax in addressing certain maintenance and repair items? Take the time to gain affirmative action with a renewal or other commitment you are giving them. For example, if the elevator is down an unreasonable amount of time, or the parking lot is in bad need of repair, use an amendment to gain a commitment from them to address these concerns, making it a contractual obligation.
Another example of what we now know today is the impact of a pandemic. No one would have foreseen such an event three years ago, so an amendment is a great time to address newfound concerns. At National Lease Advisors, we personally saw how critical this was with “Go Dark” provisions during the Covid shutdowns. When the world was brought to a halt and companies had to work from home unexpectedly, Go Dark protections allowed for tenants to vacate the premises but not trigger an event of default.
8. Revisit Security Deposits or Guarantees
If your company has grown and consistently paid its rent on time, an extension is a good time to revisit the original security required under the lease. This is especially true if you were required to give more than one month’s rent as a security deposit or needed to provide a guaranty. If the landlord resists, a compromise is to have the security burn off over the extended term. For example, if you initially provided a two-month security deposit, negotiate one of those months being applied early in the extended term. If you provided a guaranty that did not originally burn off, make it clear that it will only apply for a specific period of time and then go away.
Tiffany Smithson, another Senior Account Manager with National Lease Advisors noted how often tenants overlook this opportunity, “We thoroughly track our clients’ security deposits, and see situations where the deposit is no longer justified. Examples might include companies that were in their early stages when the original lease was signed but are now in a financial position where new leases do not require deposits. It is very likely the tenant can get the deposit reduced on an extension, but only if asked.”
Chloe Christensen is a Director and Senior Account Manager at National Lease Advisors. At National Lease Advisors we strive to be a best-in-class partner with corporate tenants around the country. We are here to serve you, even if that means we don’t negotiate your leases directly! We hope this list proves to be a helpful resource as you engage in negotiations with your landlord. If lease documents prove to be challenging to decipher or you would like a comprehensive review of your documents, we are always here to help.