Common Renewal Mistakes, Part 2 of 2

(continued from blog post of November 25, 2019)

5. Know what your lease renewal means to your landlord: If you negotiate your lease renewal on your own, it’s impossible to know the countless variables your landlord considers and their effect on creating leverage and extracting concessions, such as:

• What are your neighbors doing? This will give you a very telling snapshot of the current and pending activity of nearby tenants, and how it is affecting your landlord.

• What is your landlord’s “true” vacancy rate? There’s the landlord’s stated vacancy rate, published vacancy rate (often including subleases) and pending future vacancy rate. In addition, many landlords own more than one building in a particular region. You need to look at the occupancy rate of your landlord’s portfolio, as well as your specific building,to evaluate their perspective.

• How does your building compare? How do other buildings compare in terms of rental rate, location, amenities, class of space (A, B, B-)and more?  Information like this can give you the confidence to accept a good deal when you see one, or just walk away.

6.Change: Markets change; building conditions change; even your landlord may have changed since you last signed your lease. As a result, you can renew your lease and eliminate archaic requirements such as restoring the space to its original condition upon lease termination, or paying a large security deposit.

7.Avoid the “Lame Duck” Syndrome: The same tenants who drive a hard bargain when negotiating for new space, roll over and play dead when negotiating a renewal. Frequently, a tenant fails to recognize the potential for change when renewing, and instead pays attention to only three or four items.

A lease renewal offers just as many opportunities as the original lease signing,including changing base years for operating expenses and taxes, obtaining free rent, and receiving tenant improvement dollars to retrofit existing space.

If you are signing a five-year renewal for 10,000 square feet with a $30 rent, you are committing to a $1.5 million contract. If it is a 10-year, 20,000 square-foot transaction, that’s $6 million. When else would you sign such a major contract without consulting experts, considering alternatives, and bargaining for more?

Many tenants wish to avoid “rocking the boat” during renewal negotiations since they must live with the landlord after the lease is signed. However, with an experienced tenant representative, negotiations are handled at arm’s length in a professional, diplomatic manner.

Tenants will gain peace of mind by comparing their landlord’s offer with competitive opportunities in the market in order to: A) reduce your current costs by 10-20 percent, resulting in $300,000 or $1.2 million of savings respectively per the examples above, and/or B) meet the changing needs of your company through options to expand, contract or cancel your lease.

Next time you’re renewing your lease, think twice before going it alone!