What Is A Lease Extension?
A lease extension is a process of adding more time to a lease. It thereby prolongs the time you have to use an asset before ownership goes back to the original owner.
A lease is a legally binding contract between a Lessor and a Lessee. The lessee agrees to pay the lessor an amount of money to make use of an asset for a specified period.
A lease extension is a legal agreement between a landlord and a tenant. The landlord grants the tenant more time to make use of the asset after the initially agreed term elapses.
Lease extensions do not only apply to commercial and residential property alone. They also extend to leases on vehicles, machinery, and equipment.
Typically, this type of document would include details such as names of the parties involved, dates of when the extension begins and ends, and a reference to the lease being extended.
There are various reasons why individuals or companies lease properties or pieces of equipment. Many companies, for instance, lack the financial ability to acquire large machines which cost millions or billions. Some companies can afford to buy a piece of equipment but lease to avoid dealing with maintenance. For instance, a company may decide to lease a piece of equipment rather than buy it so that when it is no longer needed, they will not deal with disposing of it.
A landlord may agree with a tenant to extend the lease on a property. This may happen if the tenant does not wish to vacate the property after the original tenor expires.
Another case where a lease extension applies is a contractual agreement where the owner of a piece of equipment decides to allow a lessee to use the equipment for a specified period in exchange for periodic payments.
Lease Extension Example
Jane has been renting a property from a landlord for the previous 12 months. She wants to continue living in this property. Jane and her landlord then agree on a lease extension that allows Jane to remain in the property for another 12 months. Jane must continue to make monthly payments.« Back to Glossary Index