The scenario sounds familiar. You know your lease is coming up, but you have a thousand other things going on. When contacted by your landlord, you are happy to agree to the renewal terms listed in your original contract. Let us show you how to avoid the main pitfalls and why it might be in your best interest to engage a tenant broker for your lease renewal:
Give yourself plenty of time – Start your initial assessment well ahead of time and determine if you would like to relocate or renew your current space. If you wait too long, your leverage will diminish because your landlord knows it is unlikely that you will have enough time to relocate before your lease expires. Even if you find a new space, you might not be able to move in time, which would make you subject to holdover fees or a short-term extension with a less cooperative landlord who already knows that you are going to leave.
The larger the space, the earlier the process should start. In some cases that might be 2– 3 years prior to lease expiration; however, most of the time 1 year should be sufficient. An experienced tenant broker will approach the process as if you are moving, even if this is not the goal. Depending on your needs, your broker will present relocation alternatives and/or a mostly negotiated lease renewal about 6-9 months prior to lease expiration. This will allow for final negotiations or detailed relocation planning so you can make an informed decision well ahead of time.
In addition, your tenant broker can advise you regarding the overall condition of the current market, which can positively impact your position when negotiating a new lease or a renewal. This brings us to our 2nd point.
Know your market – Educate yourself and use the knowledge to your advantage. Your landlord is more than happy to offer you a “market deal”, after all, renewals are generally more profitable due to uninterrupted cash flow and less investment (tenant incentives) on his part. To get a truly equitable deal, make your landlord aware that you understand his renewal economics and want a win-win deal to stay. This leverage will put your landlord on notice and encourage him to negotiate an equitable deal for both parties.
Use a tenant broker – Do you want someone on your team who is intricately familiar with the market and can ensure you get the best deal? Consider using a tenant broker. Tenant brokers are only accountable to you and can be very effective in renewal negotiations. Most tenants are not aware that the broker will be paid by the landlord and therefore won’t engage one due to the cost. In reality, your landlord is very accustomed to dealing with brokers and has the cost already factored in. Even if you have a great relationship with your landlord, keep in mind that your landlord is a real estate professional and in the business of making money. His obligation is to the owners and/or investors of the building. The tenant broker is on your side and can negotiate the lease terms, cost and any tenant incentives to make sure you get the best possible deal.
Don’t fall for the renewal clause in the original lease – You might think that opting for the renewal terms in our original lease is a good deal; after all it typically calls for a renewal rate of 95% of current market rent. Not so fast! As mentioned above, a renewal guarantees the landlords bigger profits due to reduced tenant improvement costs, less abated rent and no vacancy. This means the landlord has a lot more to lose and your tenant broker can use this to your advantage and properly negotiate the best deal.
Don’t sell yourself short – You might feel trapped in your lease, however, with the proper representation it does not have to be this way. A tenant broker can renegotiate your renewal or find a new space if required. You have more power than you realize, even if you are in a smaller space.
While the renewal process can be stressful, partnering with an experienced tenant broker can give you peace of mind. By avoiding any of the pitfalls, you can rest assured that you will get the best deal, whether it is the renewal of your current space or finding a new space that meets the needs of your company.
As tenant-only advisors are a free resource, be sure to seek an established and experienced team to guide you through this extensive process. If you would like to talk about your options and future plans, please feel free to reach out to Steve Coughlin at (407) 599-7100.
*Portions of this blog inspired by Darius Green.