No…it isn’t! Also commonly found in option language is a clause that states that the option is “personal” to the party who signed the lease and cannot be transferred. Most
tenants don’t give much consideration to the possibility of assigning their lease down the road and so they don’t give this much thought. But consider the following real situation I just negotiated for a retail service business in West Hollywood:
The shop space is in a burgeoning retail district in town that is experiencing exploding rents just a block to the west. First, we were able to negotiate a set rent for the option period, so we avoided surprises that can come with a “fair market rent” reset. Then I asked to delete the sentence that said that the extension option was not transferrable. The landlord did
not hold a strong position on this language – it has just been in their leases since time immemorial – and so he agreed to the change.
Now let’s project into the future. The tenant decides for whatever reason to sell the business a few years down the line. Let’s say there are three years left on the
lease. The high rents from a block over have migrated into my client’s neighborhood making the rent we negotiated well below market. Having eight years of below market rent (three remaining on the original term plus five in the option) versus just three could positively impact the value of this business by $500,000.
Now that’s keeping your options open.
