Lease negotiation is something that should be taken seriously by businesses, especially considering that real estate can be the second most expensive cost for businesses. Particularly when thinking about negotiating a renewal for your lease, be wary of the ways that the market can drive up your rent or an aggressive landlord can push for unfavorable terms for your business. Don’t be hasty to sign an agreement; make sure you really understand what you’re getting yourself into, especially in a long-term lease. Often tenants end up at a disadvantage because they find it an administrative hassle to take care of the lease negotiation, but they also want to avoid the time and expense involved in relocating. Here are a few tips for you as a tenant to educate yourself before entering renewal negotiations with a landlord, as suggested in the article “Five secrets for successfully negotiating a commercial or retail lease”:
#1 Don’t fall victim to bullying.
Landlords often try to strong-arm their way into more favorable terms for themselves by approaching tenants early and proposing a lower rate if the tenant doesn’t use a broker. Even though hiring an experienced broker might be an expense for your business, it could save you a lot of money in the long run because they have the expertise to help you negotiate a more favorable lease for your business.
#2 Consider the costs the landlord.
If you as a tenant are thinking about relocating, consider that it’s not only a financial burden for you but also for the landlord, which gives you some leverage. Landlords have to pay construction costs, potentially retrofit the space, and spend a lot of time and therefore money preparing, marketing, and negotiating a new space. On top of that, commercial space does not normally yield a profit for the landlord until nine months after the previous tenant leaves. You as a tenant need to be aware that the landlord is just as anxious as you, if not more, about the money, time, and risks associated with you vacating the space.
#3 Do your research.
Even if you know you don’t want to relocate, It is still important to research the cost of relocation opportunities to both give you some leverage and help you reevaluate your space needs.
#4 Think about the bottom-line costs.
If you’re starting to feel like renegotiation is a hassle, take a moment to calculate what a poorly negotiated lease could cost you over the course of 5 or 10 years. In addition to thinking about your overall rental rate, also think about other factors, such as expansion options, landlord responsibilities, taxes, and operating expenses. These kinds of things can really hurt a tenant, especially if you’re not used to dealing with leases and unprepared to work for favorable terms.
#5 Start early.
Conducting all this research and negotiating effectively is a long process, one that you should aim to finalize at least six months before your lease expires, which means it’s worth thinking about around two years before the end date of your lease term. Additionally, taking charge and being proactive shows your landlord that you are seriously committed to finding the best deal for your business and you’re not willing to simply accept the terms they offer.
If your business is approaching the point where you need to start seriously thinking about relocating or renegotiating, consider a few of these tips to give you an upper hand in the negotiation process.