Consider Five Tips to Negotiate a Better Renewal Lease
Lease renewal time can be tricky for tenants of retail or office building space. Depending on several factors, for example, your leverage versus the owner’s power or the health of the local economy, you could find yourself in the unfortunate position of being offered terms that are less favorable than your current lease, but not so terrible that you would want to move out of your space. Here are five tips for negotiating a better renewal lease:
Tip #1: Start planning early.If you want to maximize your renewal options, don’t wait until the last minute. Give yourself plenty of time—at least 12 months before the lease ends—to get a feel for how the owner plans to approach the renewal process. This way, if the owner is being uncooperative, you’ll have plenty of time to look for another space. Also, do some research to get a sense of what other spaces are on the market and how much rent is being charged for space comparable to your space. The comparison will help you gauge whether the owner is offering you a fair deal.
Tip #2: Know what vacancy will cost the owner.It’s important to know what it will cost your owner if you move out. During negotiations, be sure to emphasize, in great detail, that in addition to losing revenue, the owner could end up incurring an array of costs. Some of the more common costs include:
• Brokerage commissions;
• Buildout costs;
• Demolition costs; and
• Promotional costs.
Tip #3: Seek building improvements.As a tenant, you have firsthand knowledge of how well or poorly the building or center has been operated during your lease term. If you’ve had major issues with certain aspects of the building’s condition or maintenance, be sure to use those issues as leverage during negotiations.
For example, if the lobby of your building is unattractive and unwelcoming to customers or clients, tell the owner that you might be willing to consider its renewal terms in exchange for some significant improvements in the lobby’s appearance and functionality.
Tip #4: Address lease issues.During your initial lease term, issues that were not adequately addressed in your lease may have started causing problems for you. For example, you may have found that you had certain rights written into your lease, but no way to enforce the violation of those rights. Use the renewal negotiation process to revisit the lease and fix any outstanding issues. For instance, if your lease gave you access to designated parking spaces, but no right to tow illegally parked vehicles, you could take the opportunity to add towing rights to your renewal lease.
Tip #5: Let owner know you’re keeping your options open.While you always want to maintain a good relationship with your owner, never sacrifice getting the best deal just to stay on good terms. Be up front with the owner, and make it known that you’re always looking for the best deal, and will seriously consider other options if you feel that the renewal lease will not be advantageous to you. If the owner thinks that you have no other options, it could try to take advantage of your weak position. You have to make it perfectly clear to the owner that you want to work things out, but that if the renewal offer doesn’t work for you, you won’t hesitate to start shopping around. You have to be willing to walk away.