9.25 C. Renewals

• Jurisdiction: New York

C. Renewals

An extension option can be valuable. Economics aside, it ensures that your client can continue operating its business, uninterrupted, at the same location for more than a short three, five, or ten years. If your client agrees to a fixed rent during the renewal term, both it and the landlord are gambling on a future market. For this reason, leases frequently include a formula—usually tied to the fair market rate—to determine rent during the extended term.

The fair market rate depends on many individual considerations, like a tenant’s credit rating (for instance, IBM will probably get a greater discount than a two-year startup because the landlord’s risk is lower), the formula for calculating operating expenses, and the lease term. If...