- Posted by Chris Carmen
- On September 8, 2016
Most tenants are unfamiliar with negotiating an office lease renewal. Some may not even realize they have the opportunity to do so! Typically their broker advised them of their current lease, so they are not aware of what terms to negotiate in the first place. With the vast amount of factors involving a renewal, it may leave tenants wondering where to even begin. Luckily, the tenant can have particular information to leverage better lease terms if the negotiation is approached correctly.
Below are tips to negotiate a lease with the potential to place the tenant in a better agreement than previously.
1) Absolutely engage the services of a tenant representation broker.
Landlords conduct negotiations on a daily basis, whereas tenants are only in the market every 3 to 10 years. A commercial real estate broker who specializes in tenant representation will know current market conditions, including the terms offered at your existing building for new leases and for lease renewals, as well as the terms offered your landlord’s competitors. The simple presence of an experienced broker at your side signals that you are considering relocation and are knowledgeable of current market terms, making clear that your landlord will have to offer more competitive terms to renew your lease or risk losing your business. Keep in mind, not all brokers are created equal. It is far better to engage the services of a broker that specializes in representing tenants, often referred to as a Tenant Rep Broker.
2) Introduce competition into the negotiation.
Whether you are truly interested in relocation or not, alternative buildings must be considered to add competition to the lease negotiation. If your landlord does not believe you are considering relocation, you have no leverage in the renewal negotiation. You and your broker must convince your landlord that he or she is competing for your business.
3) Start early.
If you begin negotiations too late, you won’t have the leverage, flexibility, or time needed to get the best deal. A threat to relocate, for example, is only believable if you can really do so before your lease ends. By starting early, you can evaluate the market, present a plausible interest in relocation, and walk away from a first offer – all with time to spare to be courted back by your landlord.
4) Do not accept the landlord’s first proposal.
Once the landlord has made an initial renewal proposal, sit on it. Your measured and unhurried consideration of the offer communicates to your landlord that you are out in the market evaluating office lease alternatives.
5) Ask for more than you can get.
Once you’re ready to respond to your landlord’s renewal proposal, be aggressive. Ask for more than your targeted rental terms. Your landlord does not want to lose your business and will negotiate even if he or she feels your counter is unreasonably low. Your aggressive approach will also reveal where the landlord needs to be to get close to your first counter.
6) Ask for more than just a great rate.
What else can you ask for? Anything within reason. A lease renewal is your opportunity to resolve any nagging issues that may have been present during the term of your lease. This almost always includes some office improvements, such as carpet and paint, but can also include things like common area renovations or upgrades, reserved parking spaces, fitness center memberships, or free use of a conference facility. The time to ask for improvements is now – when your landlord is competing to keep your business.
7) Do not expect returns on your good tenancy.
You will not get a better deal because you have regularly paid rent for 15 years or have a “nice” relationship with the landlord or building manager. In fact, just the opposite is true. As a renewal, you will get a less competitive offer than someone with no history in the building. Landlords offer new tenants better terms than they offer to existing tenants for lease renewals. Factor goodwill out of the negotiation.
8) Do not speak directly to the leasing agent or the landlord without your tenant representative.
Remember, it’s in the landlord’s best interest to negotiate with you, the tenant, without your expert present. Unless you have developed your approach with your tenant representative beforehand, discussing terms of the deal directly can undermine your negotiation strategy.
9) Carefully control information regarding the renewal negotiation.
It’s not uncommon that your landlord will have a champion within your company. Make certain your information is well controlled so that your motivations are not uncovered during the negotiation, undermining your efforts to get the best renewal terms. “Loose lips sink ships” has never been as true as during the negotiation of an office lease.
10) Make sure your tenant representative and attorney are working in tandem.
Retain a real estate attorney to review the lease and its amendments. However, don’t rely on your attorney to negotiate rates, and don’t rely on your broker to negotiate legal clauses.
For additional information about office lease renewals or other commercial real estate lease topics, contact CARMEN Commercial Real Estate Services.