Renewing your commercial lease agreement might seem like a simple task. However, as a savvy tenant and business owner, you must recognize that there’s more to it than merely signing for another term. To ensure your requests and needs are met by the landlord, there are important steps you should follow—and some you should avoid.
Conduct Thorough Market Research
Market research is a crucial step whether you are satisfied with your current location or considering a move. It involves studying the current status of commercial real estate in your area, including rental rates, agreement terms, and available incentives.
Compare Your Current Status with the Market
Engage with other tenants in your building or nearby properties. Ask them about their rent, lease agreement terms, and any perks they receive. Approach these conversations professionally to encourage them to share useful information.
Evaluate Your Current Location’s Sales Performance
Market research should also include exploring new locations if you’re considering a move. Don’t fall into the trap of false optimism; if your current location isn’t benefiting your business, it might be better to relocate. Although moving may incur costs, finding a more advantageous location can lead to long-term success.
Work with Commercial Real Estate Experts
If market research isn’t your strength, consider working with a commercial real estate broker. These professionals understand the market and can help you find better leasing options, amenities, or even guide you toward making a well-informed decision.
Plan Ahead
To make the most of your market research, start planning six to nine months before your lease expires. This timeline allows you to explore options and prepare the necessary paperwork. Additionally, keep critical dates, such as your lease expiration, top of mind.
Benefits of Market Research:
- Compare your rent, lease terms, and amenities with other tenants.
- Determine whether your current deal is fair or if you’re paying more than others.
- Use this information to negotiate better terms or request additional incentives.
- Identify a better location for your business if needed.
Negotiate Effectively
When renewing your commercial lease agreement, never settle for the first offer. Landlords may present a rate they’ve set for all tenants, but you should negotiate for a better deal.
Start Negotiating from the First Offer
Some tenants hesitate to negotiate, fearing it might strain their relationship with the landlord. However, as a business owner, your goal is to maximize resources and reduce expenses. If negotiating can save you money, it’s worth pursuing.
Audit Operating Costs
As part of your negotiation, request an audit of your operating costs. This will help you determine whether all expenses are being managed correctly and spent appropriately.
Benefits of Negotiation:
- Potentially secure a reduced rental fee, especially if other locations offer lower rates.
- Request perks or incentives that other tenants enjoy.
- Negotiate better lease terms, particularly concerning operating costs.
- Discuss flexible arrangements that account for potential business growth or changes, such as space expansion or additional amenities.
Avoid Disclosing Profit Increases to Your Landlord
Landlords, like you, are in business to make a profit. Never disclose your sales details, especially any increase in profits, to your landlord. Doing so might prompt them to raise your rent, knowing that you can afford it and that moving would be inconvenient during a period of success.
While building a good relationship with your landlord is beneficial, it’s wise to keep certain business details confidential.
Even after outlining all the information above, writing a letter of intent (LOI) can still seem daunting. That’s why the Leveraged CRE Team at Commercial Properties, Inc. is here to help locate commercial space for lease and assist in using a letter of intent to land such space. Contact us at (480) 330-8897 or send us an email at request@leveragedcre.com.
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Meet The LeveragedCRE Investment Team
Phill Tomlinson and Eric Butler are seasoned commercial real estate brokers with over 44 years of combined experience. They lead the LeveragedCRE Investment Team at Commercial Properties, Inc. (CPI) in Scottsdale, Arizona, specializing in investment sales and tenant/landlord representation across the Phoenix and Scottsdale submarkets.
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