How important is the 5 year option in a lease?

[John McKee]

A lot of leases have multiple 5 year option clauses but are they really necessary from a landlord perspective?  It seems like the only benefit is to the tenant that can lock in their option rates for the long term.  Loan officers don't care unless they see the option exercised.  All the loan officer cares about is their commitment to the property.   

[Kristi Kandel]

Quote from @John McKee:

A lot of leases have multiple 5 year option clauses but are they really necessary from a landlord perspective?  It seems like the only benefit is to the tenant that can lock in their option rates for the long term.  Loan officers don't care unless they see the option exercised.  All the loan officer cares about is their commitment to the property.   

 If I'm the LL I want the 5 year option ONLY if the option is on the Tenant AND LL. If I'm the Tenant I want the option as a Tenant option only so I have control over my business location and operations. We do leases every day around this concept. 

The reason for options is so that if you both want to extend the notification process is simple and you're not reinventing the wheel by drafting and negotiating a brand new lease if everything is working. 

If the option is on the Tenant AND LL then that allows you to not renew and if you want you could keep the same Tenant AND negotiate better lease terms if the market/economy dictate.