Do’s And Don’ts When Renewing Your Commercial Lease
Renewing your commercial lease agreement seems like a pretty simple task. But as a wise tenant and business owner, you must know that there is more to the task than merely signing your lease agreement for another set of years. There are actually things you can do and must not do in order to ensure that your requests and needs are met by the landlord.
Here are three (3) of the most crucial do’s and don’ts when it comes to renewing your commercial lease agreement.
Whether you find yourself contented with your current location or not, market research is a significant step in exploring your rights and demands as a tenant. Doing market research entails studying the current status of commercial real estate properties in your area, including rental rates, agreement terms, incentives, and perks.
Compare your current status vs. the market
Communicate with other tenants in your location or in neighboring properties and asking how much they pay for rent, what their lease agreement inclusions are, and the incentives and perks they enjoy, if there are. Of course, you need to remain professional in your approach for them to disclose these pieces of information.
Consider sales on current location
Market research may also include finding options if you are deciding to transfer. Never dwell on false optimism, which means that if you feel that the location is not working for your business given the time of your stay, it is often better to transfer to a more advantageous location than stay and wait for progress to happen. Moving out and transferring may initially cost you money but once you secure a better location, it will prove to be a correct move in the long run.
Work with experts
For some business owners, it may benefit to recognize that doing market research is not your cup of tea. There’s an apparent reason why commercial real estate brokers exist. Therefore, you can acquire market research by working with a commercial real estate broker who knows the market very well to find leasing details, better locations, amenities or help guide you in the right direction on making a quality decision to attain positive results in the long run.
Provide time to plan
Remember that market research will benefit you as a tenant and as a business owner. Therefore, you need to invest ample time to plan out your actions. It is recommended to have things in mind at least six to nine (6 - 9) months before your lease expires. This should give you enough time to explore and prepare your necessary paper works for whatever you decide to do.
Another side note: always keep critical dates in mind, such as your lease expiration date.
So, what’s in it for you and your business?
By doing market research you can:
- compare your current rent, agreement inclusions, incentives, and amenities with that of other tenants
- evaluate if you are on a fair trade with your current landlord or you are on a disadvantaged position with higher rental rate than the other tenants
- use these bits of information to negotiate better terms or request incentives, perks, or additional amenities
- find a better location for your business
Negotiate from first offer
During your lease renewal, never settle with the first offer. Your landlord may retain the same rental rate or discuss with you any changes in your rent or expenses. The first offer is often a rate the landlord has set for all tenants at the project. Therefore, you need to start negotiating for a better trade from your standpoint.
Some tenants are scared of negotiating terms with their landlords, while some simply settle with their current rate. As they say, “Don’t fix something that’s not broken.”
But as a business owner, your goal is to maximize your resources and generate higher income, and if that means saving a certain amount from your rental expenses, then that is already significant. This is where your gathered information from market research enters the picture.
Have operating costs audited
When negotiating, make sure to have your operating costs audited to assess whether all your operating expenses are properly managed and is spent on the appropriate items.
What’s in it for you?
- can negotiate for reduced rental fee, especially when other locations offer lesser rate or other tenants in your location are offered less
- can request for perks or incentives offered to new or other tenants in the same location
- can negotiate better terms on lease agreement, particularly on operating costs, based on your business or space’s needs in the present
- discuss flexible arrangements with your landlord, considering the potential changes or expansion your business or space may undergo in the future. These arrangements may include terms on space expansion and additional amenities or share-spacing options should your business require financial or spatial compression in the future
Don’t disclose profit increase with your landlord
Landlords are businessmen like you, and they are also looking for ways to be profitable. With this being said, never share details of your sales to your landlord, especially your increased sales. Some landlords may take this to their advantage to increase your rental fee knowing that you can afford this increase and how inconvenient and impractical it is to transfer to a new location when sales are booming in your current one.
Understandably, some tenants can and do develop a great relationship with their landlords, but there is something to be said keeping such details about your business close to the vest.
We hope this guide enlightened you on what you must and must not do when renewing your lease renewal agreement. Indeed, there are a lot of things to consider before signing a lease renewal agreement. It’s a given that as a business owner, you want nothing but the best for your business in all its aspects. With this being said, it is part of your responsibility as a business owner to study the ins and outs of managing your enterprise, particularly on the space where your business stands.
Considering buying your own building versus leasing? If you would like information on the next steps to get started, consider reaching out to us. We’re here to help you achieve your commercial real estate goals. Contact us at (480) 330-8897 or send us an email at firstname.lastname@example.org.
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Phill Tomlinson is a commercial real estate broker with Commercial Properties, Inc. (CPI) in Scottsdale, Arizona, and owner of the Leveraged CRE Investment Team specializing in investment sales and tenant/landlord representation in the Phoenix and Scottsdale submarkets. Phill applies over 21 years of experience in the Real Estate industry helping investors and owners maximize their returns.
Bookmark www.leveragedcre.com to learn more about the Commercial Real Estate market and keep informed of relevant real estate strategies designed to maximize your income property investment results. Connect and follow Phill on Social Media at sm.leveragedcre.com/smplatform. #LeveragedCRE