Lease Renewals: 7 Surprises to Avoid

Five years ago, few anticipated that the commercial real estate market would collapse. In some markets rental rates dropped by more than 25%. It is a good idea to review your lease renewal rights to make sure you have an equitable deal and to avoid surprises at renewal time.

Your landlord will be aware that the market has improved, but are you prepared to get the best deal possible? Having a specific real estate negotiation strategy for when a lease is up can provide a way to facilitate successful negotiations that will give you a lot of confidence when trying to get consensus with your team.

Here are 7 tips to avoid surprises at lease renewal time. Watch the video to learn tips and ensure that the negotiation process goes smoothly.

  1. The lease critical dates “gotchas”: Know your lease’s renewal language 18 months in advance. Often leases have to be renewed with a 12-month notice. Establish ticklers for critical dates and discuss your options with your broker and attorney.
  2. Your new neighbor negotiated a better deal than you did: Collect recent market comparables and know what the new tenants nearby are paying in rent. The past three years have been a tenant’s market and your new neighbor likely won concessions related to lease term, free rent, improvement allowances and sublet flexibility.
  3. Changing trends in office space requirements: What functional elements will you need in the space three or five years from now? Office trends have changed a lot – consider hiring a space planner to help you understand your future critical needs.
  4. You will find that it is a volatile market out there: Issue a detailed RFP to other landlords, and to your current landlord. Always get two or three other proposals from competing properties, and then perform a discounted cash flow analysis—you will be surprised at what you learn.
  5. Your landlord has a plan for your renewal that is a lot different than yours: Develop a negotiation strategy before contacting your landlord about your intent to consider other options.
  6. The renewal provision in your lease is a lot different than the deal you will ultimately negotiate: If you have a renewal option in your lease, decide if you are going to accept it or challenge it.

LUCKY YOU! Number Seven. Your team will have unrealistic expectations about the value you can claim at lease renewal time. I suggest that you first work with your team to reach conclusions on your optimum real estate negotiation strategy in terms of what you want in relation to the length of the lease, rental rates, responsibility for repairs and maintenance, and sublet options. Having this set in your mind prior to negotiation will help you maintain your position during the negotiation.

%d bloggers like this: