Important Factors in Negotiating your Lease

In our current real estate market, many smart companies are reviewing their lease documents and looking for a way to take advantage of current market conditions. When approaching an expiration date, most tenants focus on their lease rate and whether or not they can get a better ‘deal’, either at their current location or by relocating.  By focusing only on the rate, opportunities to improve their lease situation slip by as valuable time is lost negotiating the rate, which, arguably, may be the most important thing to a landlord.  But should it be the most important thing to a tenant?  Flexibility, downsizing, expanding, improving the space environment and controlling hidden costs are important factors as well.  Tenants would be wise to position themselves to take advantage of all the options available to them and this requires a methodical approach to acquiring or renewing a lease space.

It is never too early to begin considering your lease options.  In a down market many landlords will consider an early renewal if there is some upside for both parties.  An early renewal is essentially a renegotiation of the business points of a lease with an extension of the lease term.  An experienced leasing broker can be brought in at this point to examine the lease and discuss how it lines up with current market conditions.  A tenant should be careful to fully understand the market conditions.  There must be a compelling reason for the landlord to consider renegotiating the lease, otherwise, a tenant can alienate himself and set a bad tone for the actual renewal.  If it is determined that the current lease terms are not out of sync with present market conditions, a tenant may not be a candidate for an early renewal, but may want to set a date in which to begin looking at alternate properties and to re-analyze the market.   Depending on the size of the space in question, up to one year from the lease expiration is a good starting point but never less than 6 months.  This will ensure that you have enough time to tour, review, analyze and negotiate a new site while never giving the impression that you are backed up against a deadline.

As a tenant looks to improve their lease situation, a list of priorities should be established.  What is most important to your company right now and over the term of the lease?  Surely keeping rent low is always important but don’t overlook addressing the many additional ways to improve bottom line space costs.  Clauses such as building operating expense costs, base years, tenant improvement allowances, early termination rights and free rent periods should all be examined and considered.   Do you anticipate a need for more or less space?  Does your lease allow for the flexibility to accommodate such moves or, conversely, does it allow the landlord the flexibility to move you?  Do you have options to expand, terminate, purchase?  What about parking and signage?  Do you have enough of either and who is paying for it?   These items are all negotiable and can be pursued.  Once again, retaining a commercial real estate agent to help with your negotiations can save a company time and money.  An experienced agent is not only familiar with market conditions but is also familiar with many of the landlords in your area and more importantly, their motivations and style.  Some points that are not important to a particular tenant may be of utmost important to an owner and these points can be conceded.  Other items of importance to a tenant may be something a given landlord is willing to concede.  Make sure to cross check your list with what you know about a landlord prior to commencing dialogue.  A company that has prioritized its needs and can pursue those items has a better chance of succeeding than a tenant that asks for everything and gets nothing.

Today’s real estate market offers tremendous opportunity for tenants.  By starting early and really understanding their desires, needs and requirements, tenants have the ability realize significant improvements to their tenancy.

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