Our store Lease (5yrs & 1-5yr Option) is about to end; how are we to use the1-5yr Option? What's an Option?

We had signed a 5-yr Lease plus a 1-5-yr Option for a store front retail fast food space 4 years and 10 months ago; now we are approaching the end of the 5-yr Lease; QUESTIONS: What is the 1-5yr Option means to us? Do we have to renew the Lease? Or, do we just stay put (do nothing) and paying the same rent (or may not be the same rent) month after month 'til the 5-yr Option is used up? Then, what will happen after the Option? The Store is considered a prime location for our kind of business; please advise; thank you!
In Property Management - Asked by Jient L. - Nov 10, 2014
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Answer(s)

Steve S.
Owner/Investor
Plainview, NY

Exercise your option in writing. Depends on exactly what your lease says. If it says nothing then I believe as you continue to stay past initial lease it is implied that you have exercised your option. But that does not protect your rights to the space. Also would be a good idea to go to landlord and extend your lease or add another couple of options. Terms for option are listed in the lease regarding rent increase.

Nov 11, 2014
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Damon D.
Broker/Agent
Bala Cynwyd, PA

An option is just commercial real estate lease lingo for the tenant has the option to renew for another term based on previously agreed upon terms. If as you say this is prime real estate for your type of business it probably makes sense to exercise your option for an additional 5 years. You need to read your lease now as this will dictate what you need to do, for example "tenant must give 6 months notice prior to the expiration of the base lease term."

Nov 11, 2014
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Cliff R.
Owner/Investor
Olympia, WA

Read your lease for the exact language for exercising the option. To be honest, it's surprising that the landlord has not contacted you to find out what your plans are. The option language will tell you what terms the rent will be at also. It may have a market rate adjustment, a fixed percentage increase, or some other amount going forward. It will also tell you when you were to notify the landlord (3-6 months in advance is common). Once the option is exercised, you are most likely obligated to the space for the additional 5 years, unless there is an out clause (which would be very unusual). If you are wanting to stay longer than the additional 5 years of your option, ask if the landlord will give you additional options. Definitely do this in writing.

Nov 12, 2014
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Miguel F.
Broker/Agent
Fresh Meadows, NY

the 1 to 5yrs option means after you finalized the term of the 5 yrs , you can continue with your lease for extra 1 to 5 yrs more if you want to continue with the lease you have to renew the lease and exercise your option,
speak with you landlord the condition the new lease

Nov 13, 2014
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John P.
Broker/Agent
Glen Burnie, MD

Your question implies you do not fully understand leasing. Having an"Option" to extend your lease gives you only the right to negotiate soley to stay in your retailspace. My experience indicates that most of the time rent and terms are not specified as carrying over into the new Option Period--"Market" rents are the norm. Fully amortized build-out costs are seldom removed from the rent payment (part of the Landlord's incentive originally).
Every tenant facing the optional period should have a "COMPETENT in COMMERCIAL REAL ESTATE" attorney or *CRE Broker review your current lease and give you advice as to current market rents, Escalation of rent value and cost of relocation to help you survive competitively during the next 60 months--faulty negotiations at this time will often make you un-competitive in your market place because of overhead cost. Lastly, not properly notifying the Landlord about the option but staying on month to month could increase your rent 1.5 to 2 times. Get to a professional! *CRE Broker will usually not be compensated by the Landlord--negotiate a fair fee or hourly rate--verify they are primarily Commercial practitioners will skill in this endeavor.

Nov 17, 2014
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Anthony V.
Brisbane, CA

John P. of Glen Burnie, MD is right on target with his answer!

Dec 29, 2016
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