Renewing a lease may seem like a straightforward process since it eliminates the hassle of relocating—but that’s a common misconception. Extending a lease is just as much a negotiation as securing a new space, and it requires careful strategy. Whether your company is staying put or considering a move, a lease renewal involves discussions where both parties have their own interests at stake. And as with any negotiation, unexpected challenges and opportunities can arise, making it essential to approach the process with the right expertise.
Mistake #1: Not hiring a qualified real estate advisor to negotiate a lease extension on your behalf. This is a mistake for many reasons, but primarily because a dedicated tenant representative knows the market, your building, your landlord, and the space options available in the market and that can be used to create leverage during lease negotiations.
Mistake #2: Assuming your landlord will be “fair.” This is simply not true. The most profitable transactions that landlords make across property types are extensions of existing leases. This is largely because tenants often negotiate these transactions themselves and don’t shop around so they have no idea if their deal is “fair.”
Mistake #3: Volunteering information to the landlord that is used against your company in negotiations. When you tell the landlord that you want to renew the lease because your suite is perfect for you, your employees love the building, or that the location is perfect based on where all of the employees live you have severely limited your negotiating power. Also, don’t tell the landlord that your company is shopping around looking at spaces but you’re probably not going to move anyway.
Mistake #4: Renovating your space within 24 months of the lease expiration date. Many tenants make the mistake of updating their lobby finishes or making other space improvements not associated with a lease extension, and this is a huge misstep. In some cases the work just has to be done, but if it’s not essential don’t do it! A company that invests its own capital into a space is not likely to move out 12 to 18 months later¾and your landlord knows this.
Mistake #5: Not enough time to review the market and relocate. Landlords know how long it takes to find space, space plan, get construction pricing, negotiate a lease, and move. Regardless of how much space you lease, you need at least 12 months. It’s easier to start early and slow things down versus starting late and trying to speed the process up.
In the end, the landlord uses the market conditions to set rental rates for new leases and lease extensions. Every tenant pays a different rental rate based on their space, financial strength, lease concessions and transaction leverage. The landlord definitely uses cues and information from the tenant to determine what they might be able to charge them on a lease extension and also uses negotiation timing to their advantage.
When your lease is expiring, make a good decision and hire a dedicated tenant representative to guide your company through the lease renewal process. They can help prevent mistakes and know how to take advantage of the market conditions which can be used as leverage against the landlord to improve your company’s lease renewal terms. ITRA Global members are experts in their market¾find the one nearest you here.
Article submitted by Wayne Teig, ITRA Global l Minneapolis-St. Paul, Minnesota USA
