…A Tenant’s Guide

Lease renewal is an important time for your company. Whether you decide to renew your current office lease or move to a new space, lease renewal is a time to assess your business’ situation. Revisit the commercial real estate market and gather information to negotiate a better lease agreement.

As your lease expiry date approaches, we’ve compiled some tips (a brief guide) to make the renewal process smoother and maximize your outcome:

Start Planning Early

Much earlier than you think! One of the biggest mistakes you can make is starting too late. First, be well aware of your lease expiry date and other key dates affecting your tenant’s rights. As early as 9 months to 1 year in advance, you should begin assessing how well your current space meets your operational needs.

Start early so that you are not rushed into negotiations. You’ll also have more time to prepare for the unfortunate but possible event that you can’t stay. You never know when the landlord has other plans for the space. Or maybe you can’t come to agreeable renewal terms. So, use the long lead-time to seek out possible alternatives in case you need to relocate. 

If you decide to stay, you may need to notify the landlord as early as 6-12 months in advance. Therefore, no matter what your plans, it’s a good idea to get started with the planning early.

Know Where You Stand

The more information you have about your negotiating leverage and that of your landlord, the more likely you are to get what you want. This means understanding market conditions, lease terms, and new development.

For example, higher vacancy in a market may be caused by overdevelopment or economic conditions. Under those conditions, tenants may have the upper hand in negotiations. On the other hand, a low vacancy market gives landlords the advantage.

Build a great team to help you with smart negotiation. A good attorney will evaluate the terms of a new lease for any onerous or out of date terms. They will provide practical legal advice. A commercial real estate advisor will educate you about market conditions. They can identify potential alternative properties in other buildings, and even negotiate on your behalf.

Coming into talks with knowledge and strategy will increase your negotiating power without a doubt.

Have a Plan B

As we’ve mentioned, you should be prepared for the event that you must relocate, even if you don’t want to.

However, even if you stay, you can use your research to be more strategic at the negotiating table. And you may even uncover another space that is competitive and worth exploring. Consider the following benefits when browsing the market:

• Less debt
• Lower taxes
• Better amenities
• Competitive rental rates
• Beneficial clauses (e.g. subleasing, co-tenancy, etc.)
• Better signage options

Determine a Fair Market Rental Rate

Unless pre-determined within your current lease’s renewal clause, the tenant and landlord must agree upon a new rental rate. A real estate advisor will use current market trends and your negotiating position to get you the fairest possible price.

For example, if you leave, the landlord faces a potential loss of income, plus expenses from renovating and re-marketing the space. However, the landlord also knows that moving your business means extra costs and hassle for you. A good real estate broker will have current market knowledge and will balance your specific business needs against the landlord’s objectives.

Other Lease Renewal Tips and Considerations

Besides the all-important rental rate, there are sometimes other terms and conditions that need to be adjusted to reflect the current market. Here are a few important items to consider: 

Base Year – To avoid a significant “hidden cost”, the base year should be updated to reflect the year in which the new lease is signed.

Security Deposit – If you have a good record of on-time payment throughout the previous lease period, you could possibly lower the amount of a security deposit the landlord may be holding.

Improvements – A lease renewal is a good time to ask the landlord for any improvements or updates to your space. If none are required, you may be able to negotiate a lowered market rent to reflect the savings when compared with leasing to a new tenant.

Expansion Rights – If you have future expansion plans, this is also a good time to try and get the most out of your expansion rights.

Renewal Option – To ensure flexibility in the future, make sure you have an option to extend the new lease at the end of the term.

Final Thoughts

When it comes to lease renewal, knowledge is key whether you decide to stay or go. Plan ahead, understand your current situation, explore your options, and have a pro team in place to help you get the best results for your commercial lease renewal.

If you have any questions, we are here to help.

Have you had a good experience in negotiating a lease renewal? We’d love to hear about it. Let us know in the comments.