Moving on Up
by Bill Gladstone

Let’s assume you are leasing real estate and plan on moving into a new building. Whether the new space involves a lease or purchase, there are a few important items you will need to inform your broker: when your current lease is up, the date of your notice provision to exercise your option (if you have one), and the amount of your holdover penalty. Planning for these three items in advance can make a world of difference when moving on up.

For example, if you are in a lease situation that expires Dec. 31, with a notice date to exercise your option prior to June 30, then you should have your broker start searching the market for a new property to lease no later than April 1. If you are searching for a better price, different amount of space, or new location your broker will need time to evaluate current market conditions so you can decide if it’s in your best interest to leave your present location.

If you are locked into a three percent annual rental rate increase on your current lease it may be prudent to stay put if the market is tight and prices are sky high. In that case, not exercising your option by the June 30 deadline could be a big mistake.

If it’s an issue of needing more or less space, discussing the situation with your landlord is a good place to start, before your back is up against the wall and you have to make a choice between exercising or losing your option.

If it is a matter of location, have your broker see what’s available in the desired area and if anything meets your criteria.

If you don’t plan ahead, it’s easy to miss the notice date, lose your ability to exercise your option, and run into a problem meeting your expiration date. If you haven’t decided what you want to do by the time your lease expires, it is possible to stay on a month-to-month basis. This is known as a holdover and is probably written into your lease. Check the paragraph that addresses holdovers closely because your rent on a month-to-month basis could be anywhere from 110-200% of the rent you were paying before the lease expired. The increased rate is a motivator placed into the lease by a landlord to prevent a tenant from continuing on a month-to-month basis. Landlords prefer a tenant to make a decision in advance so the landlord can be prepared to market the space if the tenant will not occupy it for a longer term.

By having your broker start looking for an existing building to accommodate your future space needs no later than April 1, you should have a good handle on the availability of space to meet your needs by the time your notice to exercise your option is due. If there are buildings on the market to accommodate your use you can take the next six months to negotiate even though you lost the option to renew your lease. In the event that you have not determined if there are suitable buildings for you, have your broker send your landlord a letter asking to extend your notice date another 30-60 days. Many times a landlord is willing to do this if you have been a good tenant.

Once you’ve identified your new space, knowing your lease expiration date and holdover provisions will help you determine when your new lease should commence. Then you can be out of your current location and into the new space before your lease expires and holdover rent rates go into effect.

Items like these are common to property searches and brokers think of them on a dayto- day basis. As a current tenant looking to move into a new lease situation or purchase a building, a competent, well-qualified broker can focus these, and other items, into a beneficial direction for you to follow.

Copyright 2005 BillGladsone.com. All Rights Reserved.

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