Legal Question in Real Estate Law in California

Re: Commercial lease renewal

I can't add much to the two prior answers; when taken together they pretty much cover the subject.

There are indeed two kinds of renewal provisions commonly found in commercial leases. The first kind gives the tenant fairly definite rights to renew, subject (usually) only to agreement on the rental rate, which is often set by CPI adjustment or third-party appraisal. The second kind, of which this is an example, is a lot more fuzzy, and basically only assures that the landlord must at least discuss renewal with the tenant before turning elsewhere. "First option to negotiate" promises very little; I'm pressy sure it includes a duty to act fairly and in good faith, but it does not guarantee the tenant will get very far.

Re: Commercial lease renewal

That kind of provision, to me at least, is not a very good one and seems elusive. Yes, you have first crack at negotiating but, as you recognize, what happens if you can't agree?

Other leases I have seen will set out terms for a new multi-year lease with option, and provide a date by which the option must be exercised. (Depending on the type of business you have and goodwill, if any, you might negotiate for a longer term in the new lease to provide you with more security.)

I think you will be safe to argue that the landlord has to negotiate in good faith and the rent increase should be reasonable -- i.e. what is feasible for your business in your locale, taking into consideration, also, your rent payment and tenancy history. Perhaps others could chime in on this issue.

Re: Commercial lease renewal

I agree with Mr. Cohen, except that I see nothing reprehensible about this provision. Landlord has the right to negotiate a raise in rent, or can choose not to negotiate.

The option means landlord must negotiate with you first. If he does not want to negotiate, names a rental amount, and someone else takes him up on it, even if it is 100 % increase over current lease, it is his property, and he is entitled to get what the market will bear.