As a commercial tenant with an ongoing business, imagine that your lease is about to expire, but you have the option to extend the term per the terms of the lease for an additional five-year term. As options generally go, you must provide a written notice to the landlord 90 days prior to the expiration of the term – in your case, in two days! However, you are also thinking about purchasing a commercial property nearby that may be suitable for your business. The prospect, however, of agreeing on a purchase price with the owner of this property, obtaining financing, and completing due diligence makes it difficult to assess whether you will be able to close on the purchase of property by the time your lease expires.
The Dilemma: If you decide to forego your option to extend the lease hoping that the purchase transaction will close (and it does not), then you are passed the time period to extend your lease, and lost the locked-in rent rate negotiated under the lease. On the other hand, if you do extend the lease, and your purchase of the property actually goes through, then you are stuck on a five-year term lease.
You are dealing with risk and uncertainties.
When a client faced with the above scenario approached Fornaro law, we proposed a “having your cake and eating it too” solution. Fornaro Law advised the client to extend the notice period to extend the lease for a duration that would be sufficient to determine whether the client could close on the purchase of the property. Further, if the purchase transaction actually goes through, then the client would be able to terminate the lease. In return for this flexibility, the client would offer to the landlord the amount of the security deposit, but only if the property transaction closes and if the client is able to move his business to the new location. If the transaction to purchase the property fails to close, then the client would be able to provide his notice to extend the lease. Fornaro Law was able to persuade the client – and the landlord – that such an arrangement would be mutually beneficial to both of them.
Fornaro Law approaches commercial real estate transactions from a business perspective, drawing on past issues – and techniques to address them – from numerous commercial real estate clients.