A non-exclusive expansion option, also sometimes referred to as a non-exclusive right to lease (NERTL), is a lease term that grants a tenant the opportunity to lease additional space on a non-exclusive basis within the same property or building on pre-determined terms and conditions, which are typically the same terms as in the existing lease but pro-rated based on the remaining term left. In other words, the landlord reserves the right to lease space to other tenants in the same property or building, allowing tenants to expand within a select time frame. A non-exclusive expansion option differs from an exclusive expansion option, which limits the expansion space exclusively to the tenant for some time.
What are the Pros & Cons For Tenants?
The right can be an excellent benefit for the tenant because if the tenant knows they need expansion but does not know when or how much, it provides a clear path to using existing terms to add on space as required. The downside to a non-exclusive expansion option is that a third-party prospect can lease the space before the tenant can exercise such right. Hence, tenants often couple it with a right of first refusal to ensure the tenant has an opportunity to add space. The market may also move in the tenant’s favor in the future, reducing the applicability of such a right because it has pre-determined terms.
Tenant Pros:
Flexibility: Non-exclusive expansion options allow tenants to expand their business operations within the same property or building without relocating to a different location.
Scalability: Businesses may experience growth over time, and expanding within the same premises allows them to conveniently scale their operations. The right option provides a path to organic growth within a building.
Convenience: Tenants can avoid the hassle and expense of searching for new office or retail space if they need to expand by leasing additional space within the same property.
Tenant Cons:
Limited Control: Since the expansion option is non-exclusive, the landlord retains the right to lease the additional space to other tenants. This lack of exclusivity means that the desired expansion space may only sometimes be available when the tenant needs it.
Uncertainty: Tenants may need more certainty regarding the availability of additional space or whether the landlord will be willing to accommodate their expansion needs.
Difficulty to Attain: A tenant will usually have a hard time achieving this right unless it is necessary and they are a high-credit tenant. Landlords are against such rights that could potentially limit their control of a property.
What are the Pros & Cons For Landlords?
This right can benefit landlords because it will streamline the process for a current tenant to grow under the same terms and conditions previously agreed upon while also allowing them to lease to other prospects. The downside of this right for a landlord is that they cannot predict when or how much a tenant will expand. For instance, a landlord may be working on a deal with a significant prospect when the existing tenant exercises the right, which may question the other agreement’s viability. Additionally, market terms may move in the landlord’s favor, creating less favorable terms than the landlord can get with new prospective tenants.
Landlord Pros:
Maximized Occupancy: Non-exclusive expansion options can help landlords maximize occupancy rates by accommodating existing tenants’ expansion needs without seeking new tenants.
Reduced Vacancy Risk: Offering expansion options to tenants can reduce the risk of vacancies within the property by incentivizing existing tenants to stay and expand their operations rather than seeking space elsewhere.
Landlord Cons:
Loss of Control: Granting non-exclusive expansion options means landlords have less control over leasing additional space within their property, potentially leading to conflicts if multiple tenants desire the same expansion area or if the market for space moves in the landlords’ favor.
Potential Disruption: Landlords may face disruption if existing tenants exercise their expansion options, requiring adjustments to building management and potential renovations to accommodate the expanded space.