Effectively planning and timing your company’s real estate transactions can mean the difference between whether your money stays in your pocket or ends up in your landlord’s pocket.
Leverage in the negotiation of rent is directly proportionate to market competition. A landlord will charge you the highest price they think they can charge in the current market. Lease renewals are desirable and profitable transactions for a landlord. Costs related to vacancy, major construction, and marketing are eliminated when a tenant renews.
A landlord can employ many strategies to maximize their renewal profit. Here are four examples and suggested responses:
1. Landlords may approach tenants early to negotiate a renewal before the tenant has thought about options or professional representation. If this happens, tell your landlord that you’re
considering a move. Of course, moving is disruptive, so if he makes it worth your while, you’ll consider staying.
2. When a tenant needs expansion space, the landlord may offer space contingent upon a new long term extension. Even if you have an expansion option, it pays to consider other options as well. Treat any expansion as a new lease. Evaluate the market and compare. Approach your current landlord with the same scrutiny as every other possible option he is competing against.
3. The common “Option to Renew” in a lease can provide a false sense of security.
Exercising this option without the benefit of comparative market analysis could end up costing your business. If your option provides a “Market Rate” do some research and know what the current market rate is. Don’t worry about losing your option. If the only one you have is not beneficial, you won’t lose anything but your money if you choose it. Remember, if you stay, you save your landlord the trouble and cost of vacancy and improvements.
4. If a landlord perceives that you plan to get a renewal number from him first then shop around if needed, he may stall to create urgency and leave you without adequate time to do any comparison shopping. Meet with, and get proposals from, other landlords early on. You can tell your landlord that you’re doing this and also request a proposal from him. Let him know that you’ll consider his proposal, along with other options, and make a decision.
Research and negotiation take time. Plan accordingly and start this process at least a year prior to the end of your lease. If your company footprint is large or if the market is tight, two years is not too early to begin the process. Work with an experienced and competent tenant rep. Hiring the right person to help you through the process will save you valuable time and money and probably alleviate some of the stress.
For more information on lease renewals, you can also refer to our previous blog post titled “Renegotiate Your Lease Terms – Create A Win-Win With Your Landlord”.