AIR Option – 2 Key Provisions You Should Know

The AIR Option To Extend Addendum is frequently an afterthought when completing AIR lease documents. This Addendum is a well-drafted form and relatively straight-forward. Nevertheless, there are at least two key provisions that every real estate professional should know.

1.  Fair Market Rental “Floor” Provision: If it is a fair market value option, the Addendum contains a “floor” for the benefit of Lessor. That is, the Addendum provides that the new fair market value cannot be below the Base Rent immediately prior to the rent adjustment. This provision can be problematic for certain Lessees. If the market rent at the time of renewal is below the final month of the Lease, the renewal option which the Lessee negotiated may be of little or no value. Or perhaps worse, if Lessee exercises the option without being aware of this “floor,” Lessee will be stuck paying above market rent for the option term. This provision in the AIR Option is included in many custom leases drafted by attorneys.

2.  Options May Be Lost if Lessee Sells its Business or Assigns the Lease: The Addendum provides that if Lessee enters into certain types of sales of its business to a third party, the option to extend the lease term is essentially void. This can be particularly problematic for retail tenants, where the purchaser of Lessee’s business needs to remain in the same location in order to keep Lessee’s customers. In addition, if Lessee assigns the Lease during the term it is void even if Lessee assigns the Lease to an affiliate.

A Lessee should consider adding provisions that allows it to keep its option(s) in these two situations: (1) if it sells its business; or (2) if it assigns the Lease to an affiliate.

Please post your comments or questions below.

By | 2018-02-19T15:29:42+00:00 November 11th, 2015|Leasing|6 Comments


  1. Anonymous November 12, 2015 at 11:20 am - Reply

    Thank you, Usman. Glad to see you back in publication.

    • Usman Mohammed November 13, 2015 at 12:40 pm - Reply

      Thank you!

  2. Mike Lanzarotta November 12, 2015 at 11:35 am - Reply

    Thanks, Usman. All the more reason that businesses should utilize the skills and experience of a Commercial Real Estate Broker.
    We all have received calls from tenants after they have screwed up their options.

  3. Randall Wood November 13, 2015 at 9:38 am - Reply

    Thanks Usman. Just had a disagreement this afternoon with a landlord over the floor on renewal option. I asked why my client should have to pay above market, if rates drop. He suggested rate decline is highly unlikely. I said that was correct, except for 1990-1995, 2001-2003 and 2009-2011, etc. What’s more, we have all these mechanisms to define Fair Market, and even 3rd party arbitration to derive rental rate. All that, followed by imposing a floor, what a joke, it takes the “fair” right out of the “fair market”. Not sure if FASB requires tenant to book renewal options, but if so, then a floor would impose a higher rate and have unpleasant implications on the books.

    Options personal I can live with, under certain conditions.

    Keep up the good work on the articles!

    • Usman Mohammed November 13, 2015 at 12:38 pm - Reply

      Always great to hear from you Randall! Landlords and Tenants will certainly have a different view of whether this is “fair” or not. The goal of this article is to highlight these two provisions so that you can discuss these provisions with your clients. Oftentimes, the parties pay close attention to the main lease documents, but spend little time on the addenda.

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