Picture yourself as growing business owner who is happy with your current commercial space, but you are aware of your need for additional square footage to accommodate your thriving business. There just so happens to be a vacant space next door that would be the perfect opportunity to expand your business without having to move from your current location that is working very well for your business.
Lucky for you, when you put together your lease agreement with the landlord, you agreed on a clause within the agreement known as “Right of First Refusal,” that provides the opportunity to express your interest in leasing the contiguous space. In this blog post, we will break down the Right of First Refusal clause for leasing contiguous space in a commercial lease agreement.
What’s the Deal with Right of First Refusal?
Imagine your business is thriving in your current spot, but the adjacent space becomes available. With the Right of First Refusal clause, you could get the chance to lease that extra space before anyone else even gets a shot. Basically, if the landlord decides to lease or sell the contiguous space, they have to offer it to you first, giving you the right to match the terms and take it.
How Does It Work?
Let’s break down this concept with a simple example:
Landlord’s Offer: The landlord decides they’re ready to lease the space right next to yours. Instead of looking for outside tenants, they must come to you first.
Your Decision Time: You have a specific timeframe (usually stated in the lease agreement) to decide whether you want to take the contiguous space or not.
If you want it: You’ll need to accept the terms, potentially negotiate a bit, and the new space is yours.
If you pass: The landlord can then lease the space to another tenant.
Pros and Cons of Right of First Refusal:
Pros:
Expansion Made Easy: You can easily expand your business operations without having to look for new spaces and deal with the hassle of moving.
Maintain Location: Leasing contiguous space helps you maintain your prime location, which is often a crucial factor for businesses.
Control Over Neighbors: You get to control who your new neighbor is, which can be important if you want compatible businesses nearby.
Cons:
Timing Matters: You need to make a quick decision within the specified timeframe, which might not align with your business plans.
Negotiation: While you have the right to match the terms, you might still need to negotiate with the landlord to finalize the deal.
Risk of Losing Space: If you’re not quick to decide or if the terms aren’t agreeable, you might miss out on the opportunity.
Final Thoughts
Understanding the Right of First Refusal for leasing contiguous commercial space can be a game-changer for your business expansion plans. It offers you the flexibility to grow while keeping the location you know and love. Remember to carefully review this clause with your legal advisor before signing a lease agreement so that you’re ready to make informed decisions when the opportunity arises.
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For more helpful information check out our blog post titled: Q4 Commercial Real Estate’s Craig Byers and Jason Rogers Break Down the Triple Net Lease (NNN).
Let one of our knowledgeable listing agents partner with you to find a commercial real estate property perfect for your business needs, and assist you in working through the lease process. Contact Jason Rogers, Craig Byers, or Austin Geasland at 319-294-3339 today!
