“Blend and extend” refers to a popular lease amendment.
A landlord might offer an extended term and rent concession to a tenant who renews early in order to avoid a vacancy at a time when new tenants are hard to find.
Tenants seek blend and extend provisions to lower their rent payments for the existing term of the lease.
These leases were popular in the commercial arena in the early 1990’s, when office rents slumped and many vital companies suddenly found they had to cut costs.
Blend and extend is making a comeback today because of similar market forces. A company that needs to cut its budget by 10% may look to the landlord for an immediate rent reduction.
In residential leases, the blend and extend can also benefit the landlord. If rents are flat or falling, and the vacancy rate continues to inch up, blend and extend may buy a landlord a little more time — keep the unit rented another six months and see what the market looks like then.
The vacancy rate today is caused in part by high unemployment. If a tenant has been laid off and forced to accept a lower paying job, discounting the existing rent in exchange for a longer term can save the landlord the costs of evicting an otherwise good tenant and lost income while the unit sits empty.
The trouble with blend and extend is that there’s no going back once the deal is signed. Extending for another year at a lower rate means risking that the rental market will suddenly rebound and the landlord is stuck with below market rent payments.
To create a blend and extend lease requires an amendment to the existing lease agreement. This assumes, of course, that the original lease has not expired.
This document can be short and simple:
Modify the lease term to the new date.
Change the amount of rent to be paid.
Convey that the rest of the lease stays in effect.
Have the parties sign it.
If you draft your own, have your lawyer do a once-over to make sure that the amendment complies with the laws in your state, and does not conflict with other language or calculations contained in the original lease.
See our four-part series, How to Create a Solid Lease Agreement.
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