Commercial Lease Renewal Time? – Don’t Panic, but Don’t Sign Anything…..Yet

If you lease space for your business, chances are you dread the moment that you receive the lease renewal notification from your landlord.  Suddenly, many questions surface in your mind including:

• Should I stay in my space for another lease term?
• Am I paying the right amount for my space?
• Is “the really great deal” the landlord is offering truly a great deal?

While it may not seem like you have anything to gain by negotiating with your landlord over a renewal, renewal time actually provides you with an excellent opportunity to extract valuable concessions from your landlord.  Here are a few quick tips to help you avoid leaving money on the table when renewing your lease.

1. Compare the proposed rent in the renewal to the market – If you have been in your space for at least 5 years and your original lease included annual increases of 2.5% or more, it is likely that you are currently paying above market rent.  That’s because annual percentage increases compound, causing your rent to grow faster than the market.  Landlords are counting on the fact that you will not do any research on market rents and will agree to pay the rate they are offering. In some cases, the renewal rate they offer you is even higher than the asking rental rate for new tenants coming into the building.   

2. Have the landlord provide incentives for the renewal – When you moved into your space, you may have been offered some specific improvements to the space or perhaps a reimbursement for improvements you made yourself. This tenant improvement allowance (commonly referred to as TI) is one such incentive. Believe it or not, TI dollars are negotiable as part of your lease renewal.  And if the last time your space saw significant improvements was 3, 5 or even 10 years ago, it could probably benefit from a touch up (especially if you’re not the one paying for it).  You may also want to ask for other incentives from your landlord including free rent, additional park spaces, improved directory signage or other benefits that would benefit your business.

3. Eliminate your personal guaranty – Unless your company has a national brand and reputation like FedEX, it is very possible that your landlord required you to personally guaranty your lease.  That may have made sense at the time, since you had no rent payment history with your landlord.  If you were diligent about making timely rent payments throughout the previous lease term, you have now established credibility with your landlord and they really should not require you to guaranty your lease during the renewal period.  As such, you should insist that the guaranty language be dropped as a prerequisite to signing your next renewal.

Conclusion

These are just a few tips for you to consider.  There are dozens more opportunities to extract value from your landlord at renewal time.  In order to derive the maximum value from your next renewal, we recommend that you work with a knowledgeable commercial real estate broker that focuses on tenant representation.  Resource Commercial Advisors is a boutique commercial brokerage firm based in Northbrook, IL.  We specifically represent tenants and ensure that they get the best possible deal when negotiating leasing terms with landlords.  Feel free to contact us in advance of your next relocation, expansion or lease renewal.

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Need help?  Call Mark Brodson @ (773) 251-3666 or email him at mark@resourcecommercial.net