Negotiations of any sort can be nerve-wracking and intimidating, especially when it comes to negotiating a lease renewal. Landlords can drive a hard bargain, making you feel like you don’t have any other options or say in the matter. The good news is…you do! Here are 8 things that can boost your negotiation power when it comes time to renew your next lease.
1. Be a good tenant
This is so basic, yet so often it’s advice that isn’t followed. Taking care of your rental space will give you leverage when it comes to negotiating your lease renewal. If issues arise between you and your landlord, resolve them quickly and amicably. It’s only to your benefit to be on good terms with the person who determines your rental rates.
2. Start early and understand your options
Particularly in a very tight commercial real estate market, you’ve got to allow at least 9-12 months for the process to play out. It can take several months to research your alternatives, open up negotiations with prospective landlords (especially concerning tenant improvements), and then come back to your current landlord. And you’ll want to allow 2-4 months if you have to plan a move (assuming you’re an SMBE like us).
3. Understand your market – and concessions that new tenants can extract.
While market rental rates are important to understand, there are a number of other considerations new tenants may enjoy. These include tenant improvements, rent holidays and other benefits.
Understanding these will not only give you a sense for what you might expect if you go elsewhere, but it can also help you negotiate your current renewal. Why shouldn’t you enjoy at least part of those benefits on the renewal?
4. Consult with (if not retain) a broker.
I’m a big believer in at least talking to experts in a field. Brokers can give you a sense for the market, current conditions, and offer other valuable input. I generally recommend using them to represent you in a lease negotiation. Depending upon the size of your business, this can represent anywhere from a $350k to a multi-million dollar obligation over a 3 to 5 year period. The truth is, while you may know your business better than anyone, you’re probably not an expert in commercial real estate. Seek out advice from someone who is!
Bonus Tip: If you are going to use a commercial real estate broker, I suggest using a tenant only representative, as they are less likely to be conflicted than brokers who may represent either side.
5. Depending on how much leverage you have, work to “share the savings.”
Just as you may want to avoid the headaches and costs associated with moving, your landlord may have the same interest. If you’ve been a good tenant and are paying near market rents, the last thing your landlord wants to deal with is several months of vacancy, showing the space, negotiating and paying tenant improvements, and then having to deal with an unknown. So work to value how much benefit each side is getting out of the renewal and see if you can’t find some common ground.
6. Think outside the box and understand your landlord’s situation.
Your landlord is interested in three things: 1. the underlying value of the property; 2. current income/cash flow from the property; and 3. avoiding headaches. Understanding the relative importance of each can be very helpful in your negotiations.
For example, commercial property is essentially valued at a multiple of cash flow (it’s a cap rate if you want to be specific) over a period of time, with an emphasis on future cash flows. If the landlord is thinking about re-financing or selling the property in 2-3 years, she will want to boost the cash flow in that later period. This can provide you with a path to reducing your near term rental outlays in return for increasing the rent at a time when it particularly matters to the landlord.
7. Put together a spreadsheet balancing overall costs for your various rental options
Feel free to let your landlord know you’re doing this, and make sure that you’re getting all the information you need to make a balanced and informed decision. This will also alert them to the fact that you are exploring other options which can work to your benefit in lease negotiations. (A good tenant rep broker has software to run this analysis.)
8. Get your hands on a bunch of actual lease agreements and extensions.
This can help give you ideas for different terms that you might want to incorporate into the lease that you may not have thought of. Of course, if you have representation, you should encourage them to do this -you’d be surprised how often this valuable opportunity is overlooked.
No matter where you stand in your current lease, it’s always a smart idea to follow these pieces of advice now. Some you can do immediately and others you can plan for in the future. Doing so can provide you with a valuable return, especially if it helps you to negotiate a lease renewal with favorable terms that keeps you in a space you love for less while building a good relationships with your landlord.
Do you have a specific question about renewing a lease? Let us help you find an answer by sharing your question in the comments below!