The law requires tenants to strictly comply with the lease’s requirements for the proper exercise of the option.
Laguna Woods, CA (PRWEB) July 11, 2016
For most businesses, securing an option to extend their lease(s) upon expiration is very important. “Therefore, it is imperative that businesses negotiate a properly drafted lease option provision when entering into a new lease for commercial space,” said attorney Joseph Ferrucci, who has been practicing law for twenty years.
Ferrucci lists the following three particular issues a business must pay close attention to when it comes to options to renew or extend a lease term:
No. 1: Make sure the grant of the option is clear and unambiguous. “Many tenants and landlords want to avoid the costs of having lawyers involved in their lease negotiations,” said Ferrucci. “However, this often leads to the parties drafting clauses that are ambiguous and that do not clearly express their intent. While courts are inclined to interpret ambiguous renewal options in a light that is most favorable to the tenant, this does not mean that a court will interpret the provision in the way the tenant interprets it. Furthermore, litigating the true intent of the parties costs money and leaves the tenant in a very vulnerable position. Therefore, it is extremely important that the grant of the option and all of its essential terms be very clear in the lease documents.”
No. 2: Exercise the option in strict compliance with the terms of the lease agreement. “Although courts will usually favor the tenant when interpreting ambiguous lease provisions, the law requires tenants to strictly comply with the lease’s requirements for the proper exercise of the option,” said Ferrucci. “For example, if the lease states that the option must be exercised in a certain window of time (typically no more than nine months but no less than six months before the initial term expires), the option must be exercised within that timeframe.”
No. 3: Make sure the rent amount during the option period is preset or easily ascertainable. To be legally enforceable, an option clause must state what the rent will be during the option period. However, the specific amount of rent is rarely stated in option clauses, but instead stated to be “fair market value.” However, a determination of fair market value is often a contentious issue. “Thus, there are two things the parties should do to minimize the likelihood of a dispute over what the fair market value of the premises is,” said Ferrucci. “First, ‘fair market value’ should be meticulously defined in the lease. Secondly, the lease should also provide for an economical way to determine fair market value if the parties cannot come to an agreement on that issue.”
About Joseph Ferrucci, Ferrucci Law Group
Joseph Ferrucci specializes in complex business and commercial litigation for clients in Orange County and throughout California. Ferrucci Law Group is a boutique firm that provides personalized service to every business and individual it represents. For more information, please call (949) 600-5370, or visit http://www.oc-litigation.com. The law office is located at 24361 El Toro Road, Suite 220, Laguna Woods, CA 92637.
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