Five Common Lease Renewal Pitfalls
If your term is about to expire and you think renewing is as simple as calling your landlord and extending your current terms and rate, then you may want to read on because we’ve got some news for you. The truth is, negotiating a lease may put you in a costly trap, whether you try to do it yourself or hire a professional.
A renewal may represent an opportunity to:
- Save money
- Modify key lease terms
- Make facility upgrades
- Improve business performance
However, when negotiating without knowledgeable and professional representation, this opportunity is often lost.
This is because many parts of the process are not widely known to tenants (or even brokers), but rather, they come from the experience of dealing with landlords on a weekly, or even daily, basis. And if you fail to get it right, you may be stuck with your situation for 5 or 10 years, or maybe longer. This is something we’ve seen when approached by businesses looking for help because they can’t afford to make the same mistake twice.
From inadequate requirements, compromising to meet deadlines, stressing over uncertainty, or getting locked into overpaying… the space you occupy should be the least of your operational worries.
We’ve seen Five Common Costly Mistakes that tenants and users make when renewing their leases, and while you may not be able to execute on these items in real-time in a boardroom (and we wouldn’t recommend going without a broker who is a leasing specialist) you should at least be aware of them.
Taken individually, they may only have minor impacts on the transaction. However, a combination of many (or all) of them can spell disaster to the end result.
Today, let’s examine one of the five common issues we see Tenants face during the lease renewal process.
Major Pitfall #4: Not Knowing Values & Rates
Are you sure this is the best deal you can get? This is the question that most people ask themselves when making a long-term commitment. Or when negotiating terms and pricing on deal. Landlords’ businesses rest on a phenomenal understanding of values and the strategic negotiation of leases.
They know the market, including:
- tenant demand,
- market inventories,
- the performance of competing properties, and
- the pricing of competitive transactions.
Further, they know – and have baked into their financial and business models – the lowest rate at which they could afford to make a deal, as well as the total cost of a lease transaction, including concessions such as free rent and tenant improvement allowances.
Ultimately, they know just how valuable your company’s occupancy is to the value of their building. However, they will not be compelled to tell you (nor would they always know for certain) if you could find a better deal elsewhere. It is your duty to do your due diligence and compile an analysis of all possible options.
And if it’s been a few years since you’ve had to engage in negotiations, then the time required to educate yourself and get up to speed on topics such as:
- the market,
- current trends,
- going rates,
- new developments,
- incoming supply,
- vacancies, etc.
And not even accounting for off-market activities, these points can quickly overwhelm and pull you away from your day-to-day focus.
Further, unless you have a dedicated research team, then it may not be in your best interest to perform this analysis and reporting.
Bottom Line: That’s why you should turn to an experienced tenant representative or Corporate Solutions Group that is immersed in your market and has their finger on the pulse of all relevant happenings. They can level the playing field and equip you with the right information and insight that rivals (and often exceeds) that of the landlord.
Summary
Overall, Tenants and Landlords of commercial space are constantly looking for opportunities to minimize costs and risks associated with their real estate footprints and portfolios.
A lease renewal is a part of any Tenant’s experience as an occupier of commercial space. Aside from purchasing space or relocating, there is little chance of avoiding it. The good news is, the process can be done proactively and leveraged strategically to gain an edge at the negotiating table. Competitive rents, favourable terms, and even concessions – such as Tenant Improvements – are all items which can be pursued and which may be obtained.
