How to (Properly) Exercise the Option to Extend Your Commercial Lease

You want your office lease to be in your favor not only from the initial signing but also when renewing it with your landlord. In reality, it doesn’t always work out this way, especially when healthcare practice owners are unaware of how to properly extend the lease or the terms were ambiguously written from the outset.

Why Is the Option to Extend the Lease Important for Doctors?

The Option Extend the Lease is your unilateral right to extend the lease term. Here’s why it matters.

Gaining a good reputation at a location takes time and energy — and your reputation is critical to your success. By allowing you to stay at your current location, the option to extend your lease sets you up for long-term stability for your practice. You won’t have to vacate the premises if the location is working in your favor and can continue to build your practice at a location you’ve already invested in.

On the flip side, what happens if you fail to extend? You could lose customers who depend on your office’s proximity. It can be challenging to retain workers, move equipment, and rebuild the customer experience at a new office. Plus, the admin and paperwork required when moving can use up the critical time you need to get things going again.

It’s best for you to get a grasp on your option to extend as it is an important piece of your practice’s success.

How It Works

The lease extension option is available to you as long as the option is explicitly included in your lease agreement and you exercise it before the lease term expires. If available, your current lease will state the deadline of when to exercise that option. Most landlords in California require advance notice of at least six months before the expiration of the current lease term.

As long as you haven’t breached the agreement, and you send in your notice to renew exactly as outlined in your lease, you can renew your lease. The landlord cannot waive the provision. If there’s no option to renew the lease contract, there’s no obligation to renew the lease for either party.

After exercising your option, both parties will negotiate new renewal terms which mostly revolve around the rent and payments for the extension term. The rent amount is commonly derived from the fair market value of your area and calculated using a formula outlined in the lease contract.

You cannot create a lease agreement that lasts forever, nor can you create automatic future contracts. Each contract must have an end, and you can discuss renewal for the next term before the current one expires. Once you agree to the extension, the new contract will apply at the start of a new term.

Be Future Minded

More often than not, the option to extend the lease is exclusive to you. In other words, you can’t transfer these rights to someone else without the landlord’s explicit consent. However, it’s in your best interest to make sure these options can be transferred. Why? You have to consider your future goals. If one day, you’d like to sell your practice, then the ability to transfer your option to extend the lease will be a key part of making sure the process is seamless.

Next Steps

Even after extending your lease, there are still several options you need to be wary of. For example, your new agreement may have a sublet clause that will not allow you to sell your business later on. It may also prevent you from leasing a part of your property without the landlord’s agreement. Some leases will charge you for a transfer, and you can pay a hefty premium because you didn’t read the fine print.

Make sure you have a lease agreement that works for you by attorneys who specialize in the needs of healthcare professionals. We have helped many practices succeed with their commercial leases that create stability and peace of mind. Reach out to us if you have any questions about your healthcare lease — we’d be happy to help.