A Property Management Agreement sets the terms under which an agent manages real estate on behalf of an owner. This playbook outlines duties of care, indemnification, and compensation structures.
Why This Matters: Favorable renewal terms protect against sudden vacancy or rent spikes. Ambiguous durations can lead to costly holdovers or underutilized space.
Negotiation strategy
If you're the Manager:
Negotiate for clear renewal options with sufficient notice periods to ensure strategic planning. Aim for rent adjustments that align with market conditions.
If you're the Landlord:
Ensure renewal terms are fair and provide flexibility for market changes. Consider including rent adjustment clauses to reflect fair market value.
Essential elements
1
Initial Lease Term
Duration of the initial lease.
2
Renewal Option
Conditions for lease renewal.
3
Rent Adjustment
Mechanism for adjusting rent.
Action framework
ACCEPT
Propose edits if renewal terms are unclear or notice periods are insufficient.
EDIT
Reject if renewal terms are overly restrictive or lack market alignment.
ADD
Add clauses for rent adjustment and clear renewal conditions if missing.
PRO TIP
Always align lease terms with long-term business strategy to mitigate risks.
Example clauses
FAVORABLE
Preferred Lease Term and Renewal
"The initial term of this Lease shall commence on [Commencement Date] and shall continue for a period of [Number of Years] years, unless sooner terminated as provided herein. Tenant shall have the option to renew this Lease for [Number of Renewal Terms] additional term(s) of [Number of Years] years each, provided that Tenant gives Landlord written notice of its intention to renew at least [Number of Days] days prior to the expiration of the then-current term."
NEUTRAL
Fair Market Rent Adjustment
"Upon renewal of the Lease, the rent shall be adjusted to reflect the fair market rental value of the premises, as determined by mutual agreement between Landlord and Tenant, or, failing such agreement, by arbitration in accordance with the rules of the [Arbitration Association]."
UNFAVORABLE
Ambiguous Renewal Terms
"The renewal of this Lease is subject to conditions that may be determined at a later date, without specific notice periods or rent adjustment mechanisms."
Fallbacks
High-Risk Projects
In high-risk projects, ensure lease terms allow for early termination or flexible renewal options to adapt to project changes.
Rapid Market Changes
In rapidly changing markets, include frequent rent adjustment reviews to maintain alignment with market conditions.
Long-Term Strategic Locations
For strategic locations, prioritize long-term leases with favorable renewal terms to secure occupancy and investment stability.
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