Commercial lease renewal strategies are important to follow. They allow the tenant to position themselves in the best position possible to negotiate the best terms and conditions into their lease. With proper preparation a company can use the lease renewal time as an opportunity to reposition the firm’s commercial leasing needs.
A sophisticated tenant will use their commercial lease renewal so they are in a position to negotiate the strongest terms and conditions in their next lease. In order to accomplish this they will need to follow the seven important steps below. If the landlord perceives that the tenant knows their options and they are willing to act upon them the lease renewal will be more advantageous for the tenant.
7 Tips For Commercial Lease Renewal
1. Time is not a tenant’s friend
If you are like most people you are busy running your business and you don’t need another item to place on your to do list. If you have twelve months left on a lease term this may seem like a lot of time. Most people think this is plenty of time. The truth is that somewhere between 9-12 months a tenant needs to be involved in the commercial lease renewal process.
The informed tenant levels the negotiation and creates an equal position to the landlord. They will know their options and have several spaces they can lease. It is important that the landlord understands this so they know they are not the only space being considered.
2. Evaluate how your company can use the space more efficiently
What space is not being utilized as much as it should? How can you avoid having space go unused? How can you repurpose space or create areas that can be modified for multiple purposes? What technology or office configuration can you employ to create a more efficient and better work environment? What amenities would you like to have to create the ideal work environment that makes the employees happy?
It is important that your landlord knows you are considering options. The best way to get leverage to work for you is for your landlord to learn that you are in negotiations with another landlord. Preferable they will learn of this through a broker or a contractor that they know. The tenant take actions that improve the chance that this will happen. I like to call it making market noise.
3. Remember, Generally A Lease Renewal Is Better For The Landlord
A landlord’s favorite lease is a renewal. From their prospective, most tenants are not informed. The tenant has read about the real estate market from the paper or internet. They have no professional representation and they are negotiating with a market expert.
The space is already build to the tenant’s specifications and little to no construction expense will be required because the tenant doesn’t ask. The lease will be extended by an amendment which requires little to know legal expense for the landlord.
Landlords like to wait until the renewing tenant doesn’t have time to find new space. When their backs are against the wall and the landlord knows it. Conveniently the lease has a hold over clause build into it that can allow the landlord to raise the rent 150%-200% when the lease expires. The ultimate landlord hammer is holdover rent.
Don’t let this be you! For goodness sake you will be throwing away money! Get started with a professional tenant representative 9-12 months before your lease expires.
4. Have Legitimate Options
You may be 100% satisfied with your location and have no plans to relocate. You still need options. A wise tenant has three legitimate locations that they are willing to lease at the time of lease renewal. One is their present location. The other two are comparable spaces in the landlord’s competitor’s buildings.
A legitimate option is not a phone number and a brokers name from a sign. It is a well negotiated lease with space plans and construction pricing. You need to be in a position where you could walk away from your landlord’s negotiation and have a signed lease within five days after you stop negotiating with your present landlord.
In addition to negotiation strategy it is important to have other options because the landlord could change their mind. At the eleventh hour of negotiations a better tenant comes along and the landlord decides to lease your space to them. Don’t think this cannot happen. I have seen it and thankfully my clients had other options.
5. Hire a professional
You can try to navigate the lease renewal process yourself. After all you know the landlord. However, you will be leaving money on the table because the landlord will take you more seriously if they know you have professional representation. Your commercial broker will also provide you with options that you don’t know exist. These options could make you decide to move. They will defiantly place you in a position of strength in your commercial lease renewal.
Landlord’s hire professional commercial lease negotiators to renew your lease with you. These people give the property owners market reports and statistics so they know exactly what the market is for their building. Don’t make the mistake of jumping into this lion’s den. You want to have the same advantage the landlord has and have a lion on your side of the negotiation.
6. Pay Your Rent 2 days before it is due
This is one item I tell all my clients to begin the renegotiation of the lease with their first month’s rent. You are going to pay your rent anyway. Why not use it to prepare for your commercial lease renewal. I think it is logical that a landlord will give preferential treatment to a tenant that has consistently paid their rent a day before it was due for five years. With little effort you have positioned yourself as their best tenant with very little effort. You will not be in the category of a problem tenant. They will not want to loose your business.
7. Don’t Forget To Negotiate New Construction
If you have been occupying space for five years the chances are it is home to you. You like where everything is located. After all you were involved in the design. Landlord’s love to see this response when they renew you please. They charge you a market rate and you get no construction allowance. What they didn’t tell you was that the new tenant that moved in a few months ago has the same rate with $12 in construction allowance.
If you like granite counter tops. Hardwood floors in your reception area are your dream. New carpet in the office and paint on the walls has been needed for years. Now is you chance to get this done. Don’t forget to negotiate for improvements.
I have more tips to share but these are the most important ones that I can think of at this posting. Just remember your commercial lease renewal is the best time to improve your real estate position for the next 3-5 years. Don’t squander this opportunity. It is in your best interest to hire a professional to get you the best space and lease.