Business tenants need all the help they can get when negotiating property leases or lease renewals. Here are some key issues to consider.
Allow sufficient time:
For a new location lease agreement, get started nine months in advance to avoid unexpected situations and delays. Lease renewal negotiations should begin 12 months before the term expires. This will give you sufficient time to look at other sites and do your homework. If you can’t get a decent renewal rate, would you rather find out you need to move with three weeks or six months left on your lease term? Time will be your ally or your enemy, depending on how you use it.
Determine your bargaining strength:
Several factors will determine your bargaining strength with respect to negotiating a new lease or renewal. These include the overall vacancy rate of the building and recent tenant turnover. Your unit’s size in relation to the entire property is also relevant. It is not only whether you occupy 1,000 or 5,000 square feet, but also what percentage of the building you occupy.
Lease renewal allowances:
Business owners often don’t think they can negotiate for a tenant allowance on their renewal term. Untrue! Remember, if the landlord is giving allowances to new tenants moving in, then why can’t you get an allowance too?
When should the lease end?
Most tenants try to start their business going into the busy season (which makes sense). However, most lease terms should generally expire at the end of a peak season or just going into the company’s slow period. It’s usually better to negotiate a shopping centre tenant’s renewal in February than October. Therefore, rather than taking a five-year (60-month) term, opt for 56 or 64 months. Start and end your term when it’s best for you, not just the landlord.
Keep your success quiet:
One of the main reasons a tenant will be forced into a rental rate increase for a renewal term is the landlord’s belief that the tenant can afford to pay it. The better your company is doing, the quieter you must be about your success. It’s important to stifle your staff, as they are often the ones who tip off the property manager.
Request proposals be written:
When negotiating a new lease or renewal, it is most desirable that the landlord or property manager’s proposal be in writing. A landlord might not automatically send you a renewal proposal at the end of your term. If your calls go unanswered, send the landlord a letter requesting a renewal proposal within 10 days.
Anticipate your lease assignment:
Landlords anticipate that you will eventually sell your business and that you will want to assign your lease agreement – you should too. We have seen some lease agreements that say that the landlord can unilaterally terminate a tenant’s lease rather than grant an assignment. On the other hand, landlords can automatically raise the rent for the new tenant (the buyer). Check this clause carefully before you agree to it. Then negotiate for changes. •
