When drafting a commercial lease extension both parties must ensure all terms are defined. Ambiguity can lead to disputes over rent increases, repair responsibilities or length of extension itself. Misunderstandings of vague provisions can cause big problems often requiring legal intervention to resolve.

For example, if a lease extension says the "new rent shall be market rate" without specifying how or when that will be determined, disagreements can arise if the parties later disagree on what the market rate is. The tenant may think one rate based on their research, the landlord may expect a much higher rent. Without an objective mechanism to determine rent adjustments both parties may feel they are being treated unfairly.

A solution to this is to specify how the new rent will be calculated. The agreement should say what the amount is, how it will be adjusted or who the third party appraiser will be. Also defining the process for disputes in advance (e.g. arbitration) can prevent legal battles. Clear definitions of maintenance, insurance and penalties for non-compliance should also be included so both parties fully understand their obligations.

Lease extensions must comply with all state and local laws governing commercial real estate. Failure to do so can render agreements unenforceable or lead to legal action. Each state and municipality has its own regulations on lease renewal procedures, notice periods and rent increases so it’s important to know the local laws.

For instance, some states require lease extensions to be in writing and signed by both parties. If a landlord and tenant agree to an extension verbally and the landlord later tries to evict the tenant, the tenant may have no legal protection since there is no written agreement. Also, some jurisdictions require lease agreements to be notarized or filed with local government offices to be binding. To avoid legal issues, both parties should consult a real estate attorney familiar with local laws before signing the lease extension. Ensuring the extension complies with local statutes, zoning regulations and disclosure requirements can prevent costly legal disputes. Landlords should also verify their lease extension terms comply with rent control laws, tenant protection laws and any local ordinances that can affect the lease.

Tenant improvements like renovations or upgrades are a common point of contention in lease extensions. If the responsibilities for these improvements are not defined, conflicts can arise. Tenants want to customize their space to meet business needs but landlords may have concerns about the property alterations affecting long term value.

For example, a tenant may think they have the right to remodel their office space as part of the extension while the landlord may think such changes require prior approval. If the tenant goes ahead without approval the landlord may sue for unauthorized modifications. Also, conflicts can arise if a tenant invests in expensive improvements expecting to be in the space long term only for the landlord to refuse further extensions later.

To prevent disputes the lease extension should define what improvements are allowed, who pays for them and if landlord approval is required. Including a clause that specifies how improvements will be handled ensures both parties understand their obligations. Also specifying who owns the improvements at the end of the lease—whether the tenant must remove them or if they become part of the property—can prevent future misunderstandings.

Rent changes can be a major source of conflict when extending a lease especially if the method of adjustment is not specified in the agreement. Rent increases are often necessary due to inflation, market conditions or rising property costs but tenants may push back if they feel the increases are too high.

For example, a landlord may include a clause that increases the rent by an unspecified percentage annually while the tenant may think the rent remains the same. If the landlord later demands an increase the tenant may refuse to pay and then sue. Without a predetermined formula such as tying increases to the Consumer Price Index (CPI) or fixed percentage escalations misunderstandings can quickly turn into disputes.

To avoid this, issue the lease extension should include clear language on rent adjustments. Whether rent increases are based on a fixed percentage, CPI or another formula the method should be specified. Also specifying payment due dates, acceptable payment methods and penalties for late payments can prevent misunderstandings. A well-defined escalation clause ensures transparency and protects both parties from unexpected financial burdens.

A poorly drafted renewal or termination clause can lead to costly disputes between landlords and tenants. If either party misinterprets the conditions for renewal or termination legal action will follow. Ensuring deadlines, requirements and termination conditions are specified prevents disputes and protects both parties’ rights.

For example, a lease extension might state the tenant must give a "reasonable notice" before vacating the premises. If the tenant gives 30 days’ notice and the landlord expected 90 days the landlord may sue for breach of contract. Also, if a tenant assumes they have an automatic renewal, but the lease requires written confirmation they could find themselves without a space for their business.

The best way to avoid these disputes is to include precise language regarding renewal and termination conditions. The lease should specify the exact notice period, acceptable methods of communication and any penalties for early termination. Defining the rules ensures both parties are on the same page and reduces the risk of legal conflicts. Also, an alternative dispute resolution clause—such as mediation or arbitration—can provide a structured process to resolve disputes without going to court.

By addressing these common legal pitfalls when drafting a commercial lease extension landlords and tenants can create agreements that promote stability, transparency and long-term business success. Taking the time to negotiate and document all terms reduces the chance of disputes and ensures a fair and mutually beneficial lease.