In the Spotlight : Review Entire Lease When Drafting an Extension

Extensions of lease terms are fairly simple documents to draft and review, but a thorough review of the existing lease is required by both parties in order to produce a lease amendment that fairly reflects the business deal.

The obvious provisions are the extension of the lease term, the adjustments to rent, including, if applicable, any update of base years for real estate taxes and operating taxes, and any landlord work or allowance for tenant improvements. But there are other less readily apparent issues that may have to be dealt with. Because the underlying lease may contain various other provisions that are no longer germane, both parties must be careful to review the existing lease to exclude such provisions. In the absence of such exclusions, the catchall “except as modified hereby the Lease is hereby ratified and confirmed and shall remain in full force and effect” could inadvertently produce unwanted results. For example, rights of first refusal, first offer, expansion, renewal, and early termination are frequently not applicable to renewal terms, but in the absence of specific references in the lease amendment excluding the operation of such provisions, a landlord may unwittingly bind itself to providing the tenant with such continuing rights. Other provisions such as co-tenancy, continuous operation, and permitted uses may have been affected by the passage of time and should be reviewed carefully by both parties to determine whether any updates are needed. Perhaps the tenant's broker needs to be recognized in the extension.

There is a tendency in these situations for the parties to keep it simple, which is understandable, but keeping it simple does not obviate the need for a review of the entire lease prior to the execution of a “simple” amendment to make sure that simple is also thorough.

Extensions of lease terms are fairly simple documents to draft and review, but a thorough review of the existing lease is required by both parties in order to produce a lease amendment that fairly reflects the business deal.

The obvious provisions are the extension of the lease term, the adjustments to rent, including, if applicable, any update of base years for real estate taxes and operating taxes, and any landlord work or allowance for tenant improvements. But there are other less readily apparent issues that may have to be dealt with. Because the underlying lease may contain various other provisions that are no longer germane, both parties must be careful to review the existing lease to exclude such provisions. In the absence of such exclusions, the catchall “except as modified hereby the Lease is hereby ratified and confirmed and shall remain in full force and effect” could inadvertently produce unwanted results. For example, rights of first refusal, first offer, expansion, renewal, and early termination are frequently not applicable to renewal terms, but in the absence of specific references in the lease amendment excluding the operation of such provisions, a landlord may unwittingly bind itself to providing the tenant with such continuing rights. Other provisions such as co-tenancy, continuous operation, and permitted uses may have been affected by the passage of time and should be reviewed carefully by both parties to determine whether any updates are needed. Perhaps the tenant's broker needs to be recognized in the extension.

There is a tendency in these situations for the parties to keep it simple, which is understandable, but keeping it simple does not obviate the need for a review of the entire lease prior to the execution of a “simple” amendment to make sure that simple is also thorough.