Part 10*: How is the “Term” of the lease defined in a commercial lease agreement? How does a renewal term/extension term work?

Each lease is structured differently. Some leases have a fixed term, such as five years. Other leases may have an initial term followed by extension terms. For example, a lease may be for an initial term of five years plus two five year renewal terms at Tenant’s option. Other leases may state that the lease shall automatically renew for a certain term of years unless either party elects to cancel.

The rent for the extension terms is often negotiated among the parties. The rent may increase by a stipulated percentage or based on the Consumer Price Index. Or the rent may be based on fair market value. The lease will dictate how the rent will be determined if the parties disagree on fair market value, and the process for resolving a dispute.

*Thank you for taking the time to read this article. This article is part of our “Commercial Leasing for Non-Lawyers,” a Blog Series on Commercial Leasing. Other aspects of commercial leasing transactions in New York are discussed in other Parts of this series.

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