Lease renewal time is an opportunity for you to evaluate your current position as a renter, revisit the commercial real estate market and use that information to negotiate a better lease agreement.
You can ultimately secure a better deal and earn back a portion of your occupancy costs if you position yourself as a well-informed tenant that understands your leasing options and how they relate to the evolving needs of your business.
Here are 5 useful tips to consider during your lease renewal (as a tenant):
1. Negotiate early and know the market
A lease is a significant investment. It is beneficial to be proactive rather than reactive, in terms of negotiations. You need to review your lease on an ongoing basis, and engage with your landlord 2-3 months before the expiration date.
Because of the dynamic nature of the commercial real estate market and unpredictable economic conditions, it is better to renegotiate your lease earlier. Hence, you should continuously survey the market in order to take advantage of these openings or opportunities for savings. Having a longer time for negotiation is always an advantage, in order to avoid any circumstances, better than last minute.
2. Understand renewal benefits
Generally, landlords may continuously enjoy financial benefits when they renew agreements with existing tenants. In contrast, the landlord stands to suffer a loss in rent when a tenant rejects to continue the tenancy agreement. Also, landlords will incur additional expenses to make renovations, refurbishments, repairs, and re-market the space.
This presents the opportunity for successful negotiation. But in order to do so, it is critical to understand the landlord’s current situation, including his or her overall portfolio, and the impact and value your lease has within the market.
It is important to know the dollar amount associated with keeping you on as a tenant, and leverage that information to help win back a portion of this profit when renewing your lease.
3. Assess what your space can do for your company
Check your current space and ask yourself, “What does your business need in order to improve efficiency and create the ideal work environment?” For instance, you may consider the amenities for employees, increase power plug point, and updated technology infrastructure.
You may include them as discussion points in the lease agreement negotiation, once you have identified these needs. Your landlord may be willing to pay for the update costs, if he or she wants to continue the lease agreement with you.
4. Find the alternatives (other space) in the market
Take the initiative to educate yourself on other buildings, areas, and owners in the market. You may find another alternative solution that is cheaper or worth exploring.
Market conditions and availability may have changed since you signed your last lease. For instance, because of covid-19, some businesses end their tenancy agreement in the same building or nearby shop lot, you may check the rental and contract terms with the owner. Hence, maybe you can find the best alternative.
When you find alternatives, you may bring these differentiating factors to the table during the negotiation process, creating a negotiation power and allowing the landlord to make you a better offer.
5. Form a plan
Do not give your landlord the impression that you fully intend to stay in your current space. If they know you 100 percent want to stay, this may be used against you in the negotiation process.
The landlord may offer less favorable terms, decline your requests, or increase the rental if they know you will stay.
While you may be satisfied with your current space and want to decrease the burden of moving here and there, your company should view this financial investment from all angles. Then, prepare a few plans and then select an action plan that makes the most benefits from both business and economic standpoints.
If you have any inquiries related to real estate or businesses, feel free to chat with us.
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