If your commercial lease term is set to expire within twelve to eighteen months, the following tips may help you renew your lease with more favorable lease terms.
START EARLY – It is very important to start negotiations at least nine to twelve months before the end of the existing lease. If the negotiations fail, you need to allow enough time to move to another location. Additionally, if the landlord knows that you are in a time crunch and cannot move by the end of the lease, the landlord, not you, has the negotiating advantage.
KNOW THE TERMS OF YOUR EXISTING LEASE – Familiarize yourself with the details of your existing lease. For example, review (a) how common area maintenance expenses were apportioned, (b) who paid for utilities, (c) how many parking spaces you were allocated and where they are located, (d) whether there was a personal guaranty, (e) whether there was a minimum occupancy/co-tenancy clause for the complex, (f) the amount of any security deposit, (g) restrictions regarding sub-leases, (h) tenant improvement provisions, and (i) how rent increases were determined. Each of these items can be part of your negotiation strategy.
HAVE A PLAN – As with any negotiation, know what your bottom line is before you start. While your initial request will include more than you will agree to, know what you need the landlord to agree to for you to stay in the lease. In addition, make sure your plan is specific. Spell out what terms you want changed and what your requested changes are.
HAVE A BACK-UP PLAN – Prior to approaching your landlord regarding the renewal of your lease, have a clear idea what other properties are available for your business, the cost of those properties, the terms of the leases for those properties and the cost of moving your business. This knowledge will increase your leverage. If possible, have written offers from other landlords so that your landlord knows that you have other viable options.
KNOW THE NUMBERS – Before you meet with your landlord, do your homework. Know the vacancy rates, average rent per square foot, average length of lease, etc. for commercial leases in your industry generally and for your location specifically. In other words, be prepared to show the landlord why it makes economic sense for him to agree to your plan.
Let us know if you want assistance with interpreting, negotiating or reviewing drafts of your commercial lease.