Early Cancellation Option for your Commercial Lease?

Early Cancellation Option for your Commercial Lease?

Having managed a fortune 500’s real estate department for many years, I was never a big believer in long term leases. I found that business space needs fluctuate and it’s often not good to be locked in.

However, there are times when you may want to consider a long-term lease. For example, if your firm needs a space that is hard to come by, in high demand, unusual and/or pricey, your commitment gives you security and prevents rate hikes. . If, due to privacy law requirements, everyone needs to have their own office, that might make a suitable property harder to find and worth holding on to long term.

Furthermore, you’ll find that most landlords are willing to kick in only so many improvement dollars towards the space and the improvement requirements might exceeds your budget. In this case, landlords will often pick up the improvement costs if you sign a seven or 10 year lease. Do so cautiously though, because that is a really long time commitment in the world of business.

If you do need to secure a long-term lease, you should always ask for a cancellation option.  On a seven-year lease, ask for the right to cancel at five years, and on a 10-year contract, ask for the right at seven. If the landlord agrees to a cancellation option, he will probably ask you to pay for any unamortized improvements, unamortized commission, and unamortized free rent so the landlord can recover any capital outlay she incurred. Before signing off on the lease, make sure you agree to the dollar amount of termination penalty and put it in the lease.

About the Author

Lynn Drake’s status is well known in the industry: She’s the commercial realtor focused on maintaining “true north” for her corporate clients. It’s a reputation built on 35 years of commercial real estate experience. Lynn became a commercial realtor in 2001 after 15 years in corporate real estate. Thus far in her career, Lynn has successfully completed over 1,500 real estate transactions ranging from small business tenant leases to the sale and purchase of industrial complexes.