First time business owner in need of opinions regarding lease agreement.
Greetings all! 

My brother and I recently submitted a lease application for a boba store located in a shopping mall. Fortunately, we were approved by the property management this past Friday. However, the lease agreement explicitly states that the duration of our lease will only span three years with no further option. 

This poses as a serious concern for us as our owner carry spans two years, which means that this business is no longer a viable venture as the risk-to-reward ratio is definitely not in our favor. 

I sent an email to the property management, asking them to clarify exactly what they meant by “no further option”. Would I be correct in assuming that no opportunities for a lease renewal or extension is in place? This lease agreement just feels like a bad joke, and I’d much rather have gotten rejected than to have to deal with such an insulting offer. 

I’ve been pondering multiple scenarios as to why they would make such a ludicrous offer but none of them make any sense. Was hoping someone here could shed some light or give me some pointers. One thing I do know for certain is that the previous prospective buyers withdrew from the lease agreement for the same reason. Thoughts? What should be my next steps moving forward?
[{"id": "h36ynkj", "text": "They aren\u2019t going to give you extra terms in your favor up front unless you ask for them.  Negotiate for what you need or want and see what you can get.  The best time to negotiate is now, when you can walk away if you don\u2019t get the terms you need.", "replies": [{"id": "h36zryf", "text": "As I understand it, the previous prospective buyers withdrew because of the property management\u2019s refusal to negotiate. \n\nMind you, it has been several months since then, so the stabilization of the pandemic may inform their willingness/reluctance to negotiate. \n\nI\u2019m definitely going to attempt to negotiate, but I don\u2019t have any hopes or expectations as of yet. \n\nSay the property management refuses to budge on the extension term. Would it be ill-advised in your estimation to gamble on those three years? \n\nI spoke to a retired business owner today and he told me that I should sign off on the lease agreement on nothing else but the principle of \u201cgetting started\u201d. Those three years could be the perfect opportunity for us to show the PM what we\u2019re capable of. Even if no further option is included in the agreement, we can always reapply upon expiration. Thoughts?", "replies": [{"id": "h3a11ky", "text": "Is there a reason you don\u2019t have a Tenant Rep Broker to help you negotiate? CRE Brokers don\u2019t solicit a fee from tenants (You), instead they get a % from the Landlord should you sign a deal.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "h37ave6", "text": "The lease you are negotiating is boiler plate for a first time food services business owner, as in 100% normal and standard (ie, not an insult to you, whatsoever) for the kind of business lease you are pursuing. It\u2019s not an insult towards you personally or your business idea whatsoever. \n\nWith that said, don\u2019t listen to Reddit. Listen to your particular market, as in shop for more spaces. See what those terms are. If plenty of other property owners are offering other terms, well good for you if those terms are more beneficial to you.", "replies": [{"id": "h37zzww", "text": "You may want to engage a leasing agent that knows the market better than a lawyer to show you alternatives. Typically the leasing agent tried to get commission from the building owner but it isn't guaranteed. The leasing agent will push for an exclusive agreement so clear up if or how they would be paid for the space you are already negotiating beforehand.", "replies": [], "depth": 2}], "depth": 1}, {"id": "h37bhxm", "text": "Generally \"options\" are predetermined extensions of the lease. It doesn't mean you can't negotiate a new lease after 3 years but neither party has an obligation to. If this is an indoor mall I would assume the owner isn't signing long term deals due to the uncertainty of the future of the mall due to potential redevelopment or repurposing. Or sometimes landlords just do shorter leases with newer/smaller businesses. You can try asking for a 2 year option at fair market value - then you negotiate the rent prior to exercising that option. Regardless you should really have a real estate attorney reviewing the lease and advising you!", "replies": [], "depth": 1}, {"id": "h37pcsg", "text": "Find an attorney.  This is their responsibility", "replies": [], "depth": 1}, {"id": "h37tq22", "text": "Hire a professional because you clearly do not understand the terms of the proposed lease agreement. Reddit isn\u2019t the best place for this advice.", "replies": [], "depth": 1}, {"id": "h37vra0", "text": "Options are terms in the lease the Tenant can execute after their initial term.  In your case it is three years.  It is common for Landlords to not offer options to non credit tenants.  However, this does not mean after three years they won't give you a new lease.  \n\nShort term offers are due to a variety of reasons:\n\n1. Tenant has no background experience.\n2. Tenant has poor or average financials.\n3. Tenant has no proven record of operating a successful business.\n4. Landlord wants the space back in X years.\n5. Landlord questions the chance of success for X business use.\n\nShopping malls are very strict to whom they lease to and most spaces are predetermined by 1-5 years.  You can respond to PM and request a two year option if no defaults have occurred.  That gives you a guaranteed total of five years.", "replies": [{"id": "h37z1w0", "text": "This is a great comment for how landlords view various tenants. Another motivating reason why the landlord may only be offering 3 years right now is retail rents are low post Covid and the owner expects to raise rent in 3 years. Adding in an option will prevent them from getting the upside in rent. \nYou can ask the landlord about how they feel about blending and extending a lease after you have been established for 1-2 years. \nYou will have proven business history that is good for the landlord. The landlord benefits by getting a slightly higher rate and longer term. You benefit by having future years at a rate that could be below market compared to the landlord jacking up the rent at the end of the lease. This isn't as great as getting an extension option, but could be a second best approach if you really want the location.", "replies": [], "depth": 2}], "depth": 1}, {"id": "h37ypzk", "text": "If you are \"insulted\" by this, you may not be ready to lease a commercial space on your own.  You shouldn't seek the advice of a local commercial real estate attorney.  It's too late to get a broker involved unless you want to pay him out of pocket.", "replies": [], "depth": 1}, {"id": "h38y033", "text": "Did you have an LOI? I find that for new tenants, it\u2019s very useful to get a meeting of the minds pre-Lease drafting. \n\nAlso a helpful video of broker duties vs lawyer responsibility. There can be overlap but they aren\u2019t identical. https://youtu.be/FSI15M3oYSw", "replies": [], "depth": 1}, {"id": "h3x7iwy", "text": "If you have an LOI feel free to DM it to me. I can go through it and give you my opinion.", "replies": [], "depth": 1}, {"id": "h41ukmx", "text": "Update: Thank you to everyone who took time out of their lives to respond to my post. I spoke with the property manager and we were able to work something out!", "replies": [], "depth": 1}, {"id": "h4jgyoh", "text": "Too short of a term to recover you investment on building out the space. Makes no sense that you would move forward on this deal. Usually minimum of 5yr primary with 5 year option at pre negotiated rate or increase. Worst case scenario fair market value\u2026\n\nDon\u2019t sign this lease unless you hate money\u2026 if you hate money just send it my way and save yourself three years of work haha", "replies": [], "depth": 1}, {"id": "h4rrhh4", "text": "I spend 70 hours a week doing this professionally.  Simply tell them you have to have an option to renew the lease for a period of 3 additional years with 6 or 9 months notice to landlord.   You are spending a ton of money to build your space and business and a mere 3 year initial term is not good enough.   The rent on the rental option can be a fixed increase, or a CPI increase contrary to a prior comment about LL missing on upside.  If they say \u201cno\u201d no options, say goodby quickly.   This is not a favorable landlord and signing a commercial lease (as a tenant) is a mild form of marriage.  You better know exactly who you are marrying.   My beat advice is it\u2019s way better to have the worst lease agreement with the best landlord, than the best lease agreement with the worst landlord.   My last advise, never, ever, ever, ever sign a personal guarantee.   Pay extra security if needed, NO PG!!  PSS-  this question, and most deal points you care about are Business Points.  Lawyers are notoriously BAD at those.  And without offending any lawyers out there, I would not allow a lawyer to negotiate any business point on my behalf \u2014 ever.  If you can get a commercial broker to represent you as a Tenant Rep that would be Ideal to make sure business terms are market for your area, use and property type.", "replies": [], "depth": 1}]