Options To Renew A Lease

[keestha]

Often when looking at business for sale ads for restaurants, guesthouses and so on, I see written: 6 year lease, with an option for another 6 years, or it might be 3 years plus 2 options to renew for another 3 years, or whatever. My question is, in how far can one rely on these options. Suppose the landlord refuses to honour the option, would it be possible to start a legal procedure to force him to sign another lease, or at least pay compensation? When I am correctly informed, a lease should always be 3 years or a multitude of this (6, 9, 30 or whatever), and a lease exceeding 3 years has to be registered at the land office and written on the landpaper in order to be valid.

[quiksilva]

Firstly only leases longer than 3 years need to be registered. Shorter lease terms maybe available at some properties but certainly 3 years is the accepted market practice for commercial tenancies, in Thailand (and indeed in markets like HK and SG).

However the degree of enforceability of the renewal options will depend on the contract. Read this very carefully before committing to it, better still appoint a lawyer to look out for your legal interests.

Food for thought: Many options to renew maybe worded as to be at Mutually agreed terms... BEWARE if mutually agreed terms can not be reached then the lessor does not have to renew your lease and there is no statutory right to renew in Thailand, as there is in the UK ,Australia and many other western markets which have equivalent legislation to Landlord and Tenant Act.

As to whether you can get a landlord to pay compensation for not renewing your lease (say to cover the cost of leasehold improvements) it will depend on the individual case, I know of some tenants who have won damages and some who have lost their claims. It all depends on their contract and circumstances.

On the whole it would be very rare for a professional commercial landlord to not want to retain you for as long a term as possible, unless they have specific plans to redevelop / refurbish their property.

Most developers are very open with their future plans with incoming or existing tenants, but what might conceivably cause problems is when a building is sold.

The new investor must honour all existing leases but may not have to honour options to renew, which on some leases can be rescinded with prior written notice by the Lessor. This might happen say if they want to refurbish and reposition a property to improve rental value (an increasingly common trend here).

To sum up, read your contract carefully and seek professional advice before making a commitment.

Edited June 14, 2007 by quiksilva