Renewing Your Lease: Part Two
What to Do, Step-by-Step AND How to Save!
Continued from part one.
So here’s where we get to the Now What? question asked by so many business owners when their landlord sends them renewal documents. Below you’ll find the crucial next steps to securing the absolute best deal during your negotiations on the renewal of your lease – provided you have the option to do so under the terms.
1. First, check the landlord’s proposed rate against the market. Not just one building, but a minimum of 25 of your asset class in your immediate area. Unfortunately, landlord “asking rates” don’t help in this case. You need to try and find the actual rates from completed deals.
2. Research the landlord’s portfolio. How are they doing financially?
3. Where does your building sit in their portfolio? What kind of rents do they really need to achieve, vs what they have offered you?
4. Here’s where you begin to build leverage for your negotiations. Put together a deficiency list. NOT items you or your staff have created (continuously banging a door against a wall, etc.), but structural items (sloping floors, leaking windows, HVAC issues etc). Even better, are there any unanswered maintenance requests?
5. What is the vacancy rate in their building and the Landlord’s wider portfolio? Your goal here here is to figure out the implications for your landlord if you relocated. Remember – a renewal is a chance for you to present a credible threat of relocation and make your tenancy a competition in the marketplace, even for your existing landlord. They need to want to keep you in their portfolio!
6. Source all available options for relocating. Search all brokerages, landlords and on/off-market options. This will take a lot of your time if you don’t go through a brokerage (who have a dedicated research team), but it’s absolutely vital. After you make this list of options, tour a few that stand out to you.
7. When you have a good idea of the market, you can propose a new competitive rate to the landlord and back it up with the following: Information about other competing properties in the area; the credible threat of relocating; your deficiencies list.
8. List inducements you can achieve realistically (ie: – don’t cram them in to see if the landlord accepts. You’ll lose your credibility if you try for everything). Inducements include free rental months, a cash allowance for renovations, increased parking allowance, early termination options, a cap on an increase in operating expenses, etc.
Consider this question:
What could your business do with an additional $110,500?
This is the amount I saved one of my clients, by negotiating a fierce renewal package with their landlord. Their landlord offered them renewal paperwork, and instead of signing right away, they stopped and considered – unsure of their options. After engaging with me – and without having to move from their current space – my client received:
1. $36,100 saving on base net leasing costs over the next five years, compared to the lease that was about to expire, in exactly the same unit
2. A cheque from their landlord for $60,000 + HST to conduct renovations to the office
3. Three months of free rent, totaling $14,400.
That’s the straight-up, no-BS value of a commercial real estate broker negotiating your renewal on your behalf – $110,500 now wiped off the “Office Leasing Costs” line item. Most importantly, representation by a broker comes at no direct expense to you as a tenant – the fee is paid by your landlord. You have way more power in this process than you think.
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