Please Rotate Your Device
You should never exercise your option to renew. That is the advice we gave in this post: Do Not Exercise Your Option to Renew.
Here is an example of a time that Lease Ref advised a boutique accounting firm to ignore that advice.
First, a primer...
Renewing your lease is a discussion about the new lease length, the move-forward rental rate and any other wish-list items you have. Those items could be some free rent, cash to renovate, or some other clauses you would like to improve. Not to mention asking for a further right to renew.
Although you do not want to exercise the option to renew, you still want to have it in your back pocket - you always want to have it (you will see why soon).
What if you had an exceptionally tenant-friendly lease clause that you wanted to preserve? A clause that their landlord would love to change moving forward?
In this case the tenant's building was on the old BOMA measurement method. A more elaborate post can be found in our Case of the Growing Building post: The Biggest Scam in Commercial Real Estate.
To summarize - the landlord moving forward was now going to count the ground floor lobby area as part of the Rentable Area for all tenants. This was going to increase the tenant's square footage from 4,993 to 5,516.
Somehow when landlords re-measure, it always ends up at about a 10% increase.
The tenant otherwise had a respectable lease. The rental rates in the area had not really changed since their last lease. It looked like they could renew at the same rental rates, but the increase in the square footage would be about $100,000 added to the new lease term - $20,000 per year.
Lease Ref recommended triggering the option to renew. The lease would continue as-is, including the square footage.
To circumvent the uncertainty of not knowing what the rental rate would be, the tenant contacted the leasing agent for the building and asked what the rate would be in advance of exercising the renewal. After the verbal confirmation, the tenant included the rental rate within the renewal letter to be clear that the renewal is being triggered but that it is at the amount specified in the letter.
Spending $300 to save $100,000 was money well spent for our client. ROI of 33,333% anyone?
What's in your lease?