by Mike Kushner, CCIM
Negotiations of any sort can be nerve-wracking and intimidating, especially when it comes to negotiating a commercial lease renewal. Landlords can drive a hard bargain, making you feel like you don’t have any say in the matter or other options to pick from. The good news is that you actually do! Here are 8 things that can boost your negotiation power when it comes time to renew your lease.
1. Be A Good Tenant
This is so basic, yet so often it’s advice that isn’t followed. Taking care of your space and being on-time with your lease payments will give you leverage when it comes to renegotiating your lease at renewal time. If issues arise between you and your landlord, resolve them as quickly and amicably as possible. It’s only to your benefit to be on good terms with the person who determines your rental rates.
2. Start Early and Understand Your Options
Particularly in a very tight commercial real estate market, you’ve got to allow at least 9-12 months for the process to play out. It can take several months to research your alternatives, open up negotiations with prospective landlords (especially concerning tenant improvements), and then come back to your current landlord. And you’ll want to allow a 2-4 month buffer period if you have to plan a move.
3. Understand Your Market and the Concessions that New Tenants Can Get
While market rental rates are important to understand, there are a number of other considerations that new tenants may enjoy. These include space improvements, rent holidays, and other benefits. Understanding these will not only give you a sense of what you might expect elsewhere, but it can also help you negotiate your current renewal. Why shouldn’t you enjoy at least some of the market concessions if you renew?
4. Consult With (or Retain) A Broker
I’m a big believer in at least talking to experts in a field. Brokers can give you a sense for the market, current conditions, and offer valuable input and information which may not be publicly available. I generally recommend using them to represent you in a lease negotiation. The truth is, while you may know your business better than anyone, you’re probably not an expert in commercial real estate. Seek out advice from someone who is!
5. Depending on Your Leverage, Work to “Share the Savings”
Just as you may want to avoid the headaches and costs associated with moving, your landlord may have the same interest in avoiding the headaches and costs associated with finding a new tenant. If you’ve been a good tenant and are paying near market rents, the last thing your landlord wants is to deal with several months of vacancy, showing the space, negotiating and paying tenant improvements, and then having to deal with a new business getting adjusted. So, work to value how much benefit each side is getting out of the renewal and see if you can’t find some common ground.
6. Think Outside The Box and Understand Your Landlord’s Situation
Your landlord is interested in 3 things: 1 – the underlying value of the property; 2 – current income and cash flow from the property; and 3 – avoiding headaches. Understanding the relative importance of each can be very helpful in your negotiations.
For example, commercial property is essentially valued at a multiple of cash flow (it’s technically a CAP rate, if you want to be specific here) over a period of time, with an emphasis on future cash flows. If the landlord is thinking about refinancing or selling the property in 2-3 years, they will want to boost the cash flow in that later period. This can provide you with a path to reducing your near-term rental outlays in return for increasing the rent at a time when it particularly matters to the landlord.
7. Put Together a Spreadsheet Balancing Overall Costs for Your Options
Feel free to let your landlord know that you’re doing this, and make sure you’re getting all of the information that you’ll need to make a balanced and informed decision. This will alert your landlord to the fact that you’re exploring other options, which can work to your benefit in lease negotiations. You can also show them this data to earn yourself more favorable terms. A good tenant rep broker can run this analysis and prepare the data for you, or you can take the time to do it on your own.
8. Get Your Hands on A Bunch of Actual Lease Agreements and Extensions
This can help give you ideas for different terms that you may want to incorporate into your commercial lease renewal, that you may not have thought of on your own. Of course, if you have representation, they will do this for you – you’ll be surprised at how often this valuable opportunity can be overlooked, because the information isn’t always publicly available.
No matter where you stand in your current lease, it’s always a smart idea to follow these pieces of advice now, so that you’re ready when the time comes to renew and renegotiate your lease. Doing so can provide you with a valuable return, especially if it helps you to obtain a lease agreement with favorable terms that keeps you in a space you love for less, while building a good relationship with your landlord.
If you’re preparing for a commercial lease renewal, contact us today to speak with a tenant representative. Having someone on your side during negotiations is the key to getting a favorable lease!
This article was originally published on the Omni Realty Group website by Mike Kushner, CCIM. Omni was an exclusive buyer agent/tenant rep commercial real estate firm owned by Mr. Kushner prior to his joining the Capstone Commercial team. It has been adapted and reposted with permission. See the original article here.
