A Lease extension refers to a legal agreement that extends the time period of the original agreement, which is a lease. These extensions are available when the original time period in the lease agreement is about to expire. This legal agreement is common between a lessor and lessee based on residential property, commercial property, lease vehicles, equipment, plant and machinery.
This is a contract where a lessee pays the lessor for using an asset for a specific period of time. When the asset is tangible property, the contract can also be called a rental agreement. When the lease expires, the lessor and the lessee can give up on the access of the properties or renew it. The newly formed agreement may require some new negotiations of the terms and conditions. The original terms may still be reinforced, but the time-frame for an extension may be shorter. In the case of residential rental property, the Landlord may still reinforce the original lease agreement like — rental property amount due and extension of the lease period.
The lease extension is a formal document and must include all important details. The names of the parties involved in the agreement should be included and the dates with the extensions start beginning and end.
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A lease extension is important for the relationship between the lessor and lessee and also helps to reduce the risk for parties involved. The lessor can reinforce his terms and conditions regarding rent and due date to pay it. The landlord may also ask for prior intimation or notice period before leaving the property. This safeguards the landlord’s interest that they won’t have to risk an empty unit. In the same way, a lease extension also provides stability to the lessee. With the right extension in place, the tenant won’t have to give up on the units after the expiration of the lease.
Various businesses enter lease agreements. Later they also agree for a lease extension for various reasons. The main reason for leasing a property rather than its purchase is risk management. The business that decides to lease a Land can protect it against the risk of price fluctuation and land prices. The business can then focus on core competency rather than Real Estate.