Maximize Your Cost Savings at Renewal Time:
The perplexing issue of whether or not to renew a lease is a quandary eventually faced by almost every commercial tenant. But when a tenant attempts to negotiate their own renewal, they place themselves at a strategic disadvantage that can later prove to be very costly.
All too often, when contemplating a renewal, tenants find themselves in a highly-compromising “take it or leave it” position with the incumbent landlord. The landlord may offer a renewal at so-called “market rates” or with a small rent reduction, inducing the tenant to believe they’re being offered very favorable terms to stay put, when in reality, the landlord is merely locking the tenant into a costly renewal at an enhanced profit margin. A renewal also eliminates the landlord’s cost of remarketing the space or funding an extensive build-out, further padding profits.
The subject of leasehold improvements can also become a touchy topic at lease renewal time. Perhaps some of the originally-promised improvements weren’t implemented as promised by the landlord, or new improvement needs were identified during the course of the initial lease term. Renewal can provide an opportunity to make additional demands or to force concessions that are essential to continued tenancy.
It’s important to remember that whether or not you’re on “friendly terms” with your landlord, a landlord’s financial interests rarely align with a tenant’s financial interests. A tenant representative can work on your behalf to foster competition for your tenancy among multiple landlords, in effect forcing the incumbent to sharpen his pencil and come back to the table with a competitive “stay-put” proposal. The competitive process helps to ensure that the tenant’s renewal is being fairly negotiated, with both parties standing on equal footings.
Last but not least, don’t make the mistake of waiting until the eleventh hour to begin examining your options. By that point, you’ve narrowed your choices and have greatly increased the odds of potentially making a costly mistake. Involving a knowledgeable tenant representative early in the process – well in advance of your lease expiration date – can only enhance your leverage in a renewal.