When to approach a NNN tenant about extending/renewing?
Multi-tenant NNN property. One tenant has a 5-year option that would begin in about 18 months if they exercised. 

The notification provisions are clearly spelled out in the lease. But in general when might you approach them to ask if they intended to exercise the 5-year option, and/or to see if they were interested in negotiating a new, longer term (I might accept a lower rent increase if they did a new 10-year term, for example).
[{"id": "gvbjd8g", "text": "Depends on what I think the likelihood of them wanting/needing to stay is. If I'm fairly certain they are not looking to move or can't move for some reason, I'll wait until pretty close to expiration, like a month left or something. This puts me in the driver's seat and doesn't leave them with as much negotiation power, especially if the market has a decent chance at allowing that space to be rented to someone else if they do end up deciding to leave.\n\nIf the market isn't good at the current time and vacant space needs to be avoided at all costs, or I happen to know this tenant is seriously thinking about leaving for some reason, I'll start mentioning to them much earlier, sometimes up to 1 year before expiration if it's a large tenant.", "replies": [{"id": "gvbkero", "text": "Thanks - very helpful and makes sense.", "replies": [], "depth": 2}, {"id": "gvbmapu", "text": "This is good advice. I would also look at the option rate. Is it a stated rate (i.e. a specific dollar amount), or is it a \u201cmarket value\u201d rate (i.e. a rate you\u2019ll need to negotiate with the tenant). If the rate is stated, and it\u2019s a good rate, then you may consider the timing of contacting the tenant. However, if the stated rate is above marker, then the tenant will likely decline to exercise the option and will negotiate with you instead.  Like the poster above stated, if the market is soft, I would wait till the notice date expires. \n\nInteresting side note: I have been involved in litigation about a missed option notice date, and I learned that there\u2019s case law in my state, where the court refused to invalidate a tenant\u2019s missed option date even though the tenant sent it three weeks late, and the court ruled the three-week late notice was valid. That case has been relied upon in multiple landlord/tenant disputes in my state regarding late notices. So, I always tell my people when we\u2019re intentionally staying quiet on a notice date to wait four weeks.", "replies": [{"id": "gvbmvpa", "text": "If options are part of the lease, the above is a good way to handle. I actually avoid leases with options, so much so I have even rejected deals solely based on the fact that the tenant wouldn't budge on giving up options. I have found options never help the Landlord much, only the tenant, especially as inflation continues to happen at greater rates.", "replies": [{"id": "gvbnaqr", "text": "100% agree with above. Never grant options if you can avoid it. If you can\u2019t, then push to keep them \u201cfuture market rate\u201d options. You\u2019ll essentially be negotiating a renewal that you would have negotiated without the option.", "replies": [{"id": "gvbnvye", "text": "Yeah, my problem with when I did options with \"future market rate\" is then you have to define that, and then that's yet another definition the tenant tries to argue on, and lawyers can get involved, and it gets messy.\n\nIn addition, I don't like options, because if I don't like a tenant, or want to change the direction of the building, but the tenant never defaulted, I can't throw them out at end of term because they could exercise the option.", "replies": [{"id": "gvbohg4", "text": "I use this language in all clauses granted to the tenant, like a renewal option:  \u201cProvided Tenant has never been in default of the Lease, Tenant shall have [X] options to renew the Lease . . .\u201d  I use that preceding clause for renewal options, exclusives, rights-of-first refusal, etc.  I always tell my people to send a notice to a problem tenant after they default that all their options have been voided.  Tenant attorneys will always demand you add \u201cbeyond any applicable cure period.\u201d", "replies": [{"id": "gvbpez9", "text": "I mean if I want to get rid of them and they have NOT defaulted on anything. Let's say they pay on time, don't default in any other way, etc. but I still want them gone after the term is up... Maybe because their business doesn't fit the building anymore, maybe because another potential tenant is willing to pay double what they pay for the same space, etc. Any sort of option the tenant has takes power away from the Landlord to do what they want with their real estate. It's not an \"option\" for the Landlord to renew them it's for the Tenant.", "replies": [{"id": "gvbr2ox", "text": "Oh, I 100% agree with you. It\u2019s the tenant\u2019s option, not the landlord\u2019s, and it only benefits the tenant. If I\u2019m working in a landlord\u2019s market, then I hold the line and try to avoid all options. However, if I\u2019m working in a tenant\u2019s market, then I may have to make concessions I would rather not make, like renewal options. So, what I\u2019ve said above are the steps I take to mitigate those concessions. Regarding default, sure, there could be a scenario where a tenant I want out has paid their rent timely, but it\u2019s rare.  It\u2019s not 100% true, but it\u2019s mostly true, that shithole tenants have payment problems. And, if not, they\u2019ve likely defaulted on a non-monetary obligation. \n\nI tell my people, leases are negotiated. You can\u2019t always get them to be perfect, unless you want to lose deals. So, do the best you can at getting everything we want, and make sure as many of the landlord-favorable clauses remain, because when we get to the point where we have a shithole tenant, and we want them gone, we\u2019ll use as many bullets as we have available to us.  But, that\u2019s just the lease document. Depending on your jurisdiction, you may have other legal options depending on the landlord/tenant laws in your jurisdiction. And, you can always be creative in how you assert your landlord rights if you decide to use the courts (not my first or second choice). But, over my 26 years, I\u2019ve been lucky, I guess, that almost every tenant I wanted gone made it easy on me by missing payment obligations. In my jurisdiction, that\u2019s an easy eviction.", "replies": [], "depth": 8}], "depth": 7}], "depth": 6}, {"id": "gvcbcs2", "text": "In terms of rents on options, I prefer stated increases for exactly this reason. I'd rather short myself a touch than open it up.", "replies": [{"id": "gvcbl3z", "text": "You can do stated increases but with a CPI clause so at least you protect against lots of inflation if it happens down the line.", "replies": [{"id": "gvcdafi", "text": "We often use language similar to, \u201cshall be adjusted to the then fair-market rate for comparable space, but in any event, not less than a ten percent (10%) increase over the previous Lease Term\u2019s Minimum Guaranteed Rental (aka \u201cbase rent\u201d or \u201cbase rate\u201d).\u201d", "replies": [{"id": "gvcocnh", "text": "Interesting that tenants would agree to subject themselves to that.", "replies": [{"id": "gvdpmzh", "text": "We have 500 commercial leases, and all of them are different. Not all tenants will agree to landlord \u201cgotcha\u201d language, but you do the best you can.", "replies": [{"id": "gvfu4dt", "text": "Love that. The struggle is real. I'll certainly give this a try when the time comes.\n\n&amp;#x200B;\n\nETA: btw how do you go about determining the fair-market rate when the time comes, and is the process/measure spelled out in your leases?", "replies": [{"id": "gvgkvbn", "text": "Most of our clauses say the market rate will be agreed upon by the LL and the Tenant. That\u2019s why I prefer this kind of renewal option, because it\u2019s essentially a neutered option, and it\u2019s just an invitation to negotiate, but the tenant thinks they have a renewal option. Of course, more sophisticated tenants will see this for what it is, and the common redline you see is the \u201cthree-appraiser method\u201d if the LL and Tenant don\u2019t agree on the fair market rate. In my 26 years, I\u2019ve never seen a tenant actually demand the three-appraiser process. One variation is a BOV (broker opinion of value) instead of an appraiser.", "replies": [{"id": "gvgqyxy", "text": "Many thanks.", "replies": [], "depth": 13}], "depth": 12}], "depth": 11}], "depth": 10}], "depth": 9}], "depth": 8}, {"id": "gvcoa6w", "text": "That's fair and a good idea thanks.", "replies": [], "depth": 8}], "depth": 7}], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}, {"id": "gvboc5t", "text": "It's a stated rate (actually a stated dollar amount from which an implied % can of course be calculated). \n\nI do know \"the guy\" in the area who is the main/best leasing agent so I can and will contact him about 12 months out to get his take on prospects for securing another tenant should mine leave.\n\nInteresting about that case law. Which state if you don't mind me asking? The building in question is in RI though I am in another state.", "replies": [{"id": "gvbolb8", "text": "Tennessee", "replies": [], "depth": 4}, {"id": "gvboziw", "text": "I think you\u2019re doing the right thing. Know the market for your tenant (could they relocate and improve that unit) and know the market for yourself (likelihood you can easily secure another tenant and how much it will cost you (e.g. downtime, free rent, improvement/ construction allowances, commissions, etc.)).  Almost always, you\u2019ll find the tenant you have is the best tenant, because replacing NNN tenants is expensive.", "replies": [{"id": "gvcbrex", "text": "Thanks and yes - I'm a big believer that continual occupancy is the most desirable outcome.", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "gvbjiet", "text": "What does the lease say for timing of the notice?", "replies": [{"id": "gvbmdx9", "text": "They have to notify me at least 120 days in advance.", "replies": [], "depth": 2}], "depth": 1}, {"id": "gvbk8yu", "text": "Read renewal option language for timing. Probably 12-9 months out to give you time to put the space on market if necessary.", "replies": [{"id": "gvbmfr1", "text": "It's only 4 months notice, for better or worse.", "replies": [], "depth": 2}], "depth": 1}, {"id": "gvbl32s", "text": "Your lease should have a extension clause in it with a notice timeline.  Typically it is the tenants responsibility to meet that timeline, not the Landlords.\n\nIf missed, it is available for lease and all other terms are null and void.", "replies": [{"id": "gvboeq5", "text": "Yes that's clear and understood (it's a 4-month notice provision)", "replies": [{"id": "gvbtjce", "text": "If you have that, you can give a courtesy notice.  Some would do a January 1 of that year, others do 6 months prior to the 4 month.  It's entirely up to you.", "replies": [{"id": "gvbufzi", "text": "Yes was trying to understand best practices from a negotiating POV. I'd like them to commit to staying for as long as possible and of course at as high a rent as possible, though I'd trade a little bit of the latter for the extra security of the former.", "replies": [{"id": "gvbust9", "text": "I typically do a courtesy at the first of the year preceding the date of notice required and then leave it at that.  On the date of notice if they haven't set up a meeting, I put it up for lease and start showing the space.", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "gvc2lmh", "text": "Early renewals should always be welcomed. It\u2019s a good approach to keep good tenants", "replies": [{"id": "gvcbu4f", "text": "That's my thinking, just trying to get a sense for what \"early\" means in practice.", "replies": [{"id": "gvcc9tr", "text": "I\u2019m currently negotiating an office  space one w 4 years left . We\u2019re hoping to get some concessions now in return for the extension as they haven\u2019t occupied the space for over a year.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}]