Posted in RE forum but thought this board may offer help as well.

Need some assistance/advice from those in commercial real estate.

We have a building we are considering leasing to another company. Lease term is for an agreed upon 10 years. The language, however, states "atleast four five-year renewal options."

I know renewal options are put in leases to the benefit of the tenant but is four 5 year renewal options crazy from the landlord perspective? Is this normal/reasonable?

Does this mean the tenant can effectively make this a 30 year lease if they choose?

Thanks in advance!!!!

I assume this is a retail lease with that many renewal options?

Without reading the language, yes, it means the tenant has leasehold rights to the space for 20 additional years. That is very tenant friendly, but fairly common for the big retailers that put $$$$ into the space/building.

When giving renewal options, I try to structure the language with a strong preamble - ie, 'Subject to the tenant not being in default, having not sublet any space, occupying the entire premises… and all options are personal to the tenant named in the original lease'

SLF11 said:

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I assume this is a retail lease with that many renewal options?

Without reading the language, yes, it means the tenant has leasehold rights to the space for 20 additional years. That is very tenant friendly, but fairly common for the big retailers that put $$$$ into the space/building.

When giving renewal options, I try to structure the language with a strong preamble - ie, 'Subject to the tenant not being in default, having not sublet any space, occupying the entire premises… and all options are personal to the tenant named in the original lease'

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BoDog said:

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SLF11 said:

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I assume this is a retail lease with that many renewal options?

Without reading the language, yes, it means the tenant has leasehold rights to the space for 20 additional years. That is very tenant friendly, but fairly common for the big retailers that put $$$$ into the space/building.

When giving renewal options, I try to structure the language with a strong preamble - ie, 'Subject to the tenant not being in default, having not sublet any space, occupying the entire premises… and all options are personal to the tenant named in the original lease'

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Really more special use than retail. Tenant is pretty much able to come in and operate with little to no money for improvements, etc.

If it's a high quality tenant or a speciality property/tenant numerous options aren't a bad deal. You will want to have some ability to reprice the lease at "market" terms for at least some of the options (like 2nd and 4th) . A simple defined escalation clause won't work in inflationary environments like now. Have a good NNN structure as well to pass on insurance and tax inflation. The tenant will always try to renegotiate in a down market or if they are struggling. The mark to market at renewal and NNN will give you some power too if rents really ratchet up.

With that long of a term, and a specialty building, make sure to understand which party is responsible for roof and HVAC repair / replacement.