Trying to negotiate an amendment with a long term tenant (pizzeria)
[{"id": "im4o9ik", "text": "First off- Lease extension options primarily benefit the tenant, right? They get to choose (based on market and business conditions, whatever) whether to extend, leave, or renegotiate. You don't get the choose anything. So you give an extension option as an inducement to sign the lease in the first place. Why would you amend for an additional extension option now? If they want another extension option NOW, they have to give something for it, somehow.\n\nIf they want another option, then extend the lease now, IMO. Amend the lease end date out to five years, with an option for five more after that.\n\nThere are a number of ways you can adjust future rent. Using an index such as CPI is one. I assume you're on a gross lease where there are not separate charges for taxes, insurance, maintenance? Another common way is to set a \"base year\" for taxes, insurance and/or maintenance costs, and then in future years they pay any increase over the base year, on top of whatever the scheduled rent is.\n\nThere's all sorts of language you can insert to the lease defining how extension pricing will be determined. For example, you one of my leases defines a process whereby I propose a  market rate, tenant accepts or counters, and if needed I accept the counter OR we hire a 3rd party appraiser to determine market rate. But that is for a large industrial lease and you'd have to consider whether your pizzeria pays enough rent to support paying a 3rd party to arbitrate a market rent dispute.\n\nIf you look to extend them out to five years now: keep them on the current schedule for years one and two (original end date). Years 3-5 increase the rent bumps to 6%. Will you be close to market rent by the end of year 5? Probably? Then use CPI to determine the rent bumps during the option period. If they insist on an actual $$ rate for the option period, personally I'd use 6% or 7%. That compound interest will get painful and they won't like it. But if they're wanting to lock you in...\n\nTLDR don't give them a second extension option unless they're extending now, increasing rent now, or paying you for the option in some fashion.\n\nEdit: I should add, my philosophy as a LL is that my long term tenants should be paying somewhat under-market rent, let's say by 5-10%. Especially if I'm not paying broker fees on extensions. They're incentivized to stay (or stay in business relative to new pizzerias paying market rate, for example), and you reduce turnover/vacancy costs. Just keep bumping them up by manageable amounts.", "replies": [{"id": "im5go7v", "text": "Fantastic advice, thank you SO much!", "replies": [], "depth": 2}], "depth": 1}]