The terms of a lease renewal can significantly impact a property’s value. As market conditions change, rent should adapt accordingly. Landlords should aim for rent to be aligned with economic trends or incorporate fair market rates in renewal options. This approach ensures a level of fairness and market relevance.

The renewal option plays a big issue in a building maintaining value. I have often seen leases entered into in a weak market with multiple options to renew with set lease rates and escalations. This can severely hamper the value of a property. It may mean that a landlord’s property is below market value. What is important for a landlord is to work to get escalations to conform to the economic escalation rate and/or allow for a fair market rate to be part of a lease renewal option. There are ways to make this beneficial for both parties including CPI indexes and caps on any single year escalation.