Commercial lease negotiation is a complicated yet necessary part of business. Commercial real estate is different than other segments of the real estate industry. As a result, leasing office space is more complex. Not having a true understanding of what is being agree to when signing a lease can leave a companies vulnerable. To get the best lease possible, commercial brokerages recommend working with tenant representatives.
To Renew, or Not To Renew…
Whether or not to renew a commercial lease is a very important question – and one that often brings the wrong answer. The process of finding and negotiating new property is time-consuming, expensive, and complex. Therefore, many companies do not negotiate and renew their lease on a space that no longer suits them, simply to avoid the hassle. This is not good for business or the tenant/landlord relationship.
Other companies are happy where they are and do not want to move, yet still find themselves in a position where their needs have changed. Ignoring some important information about such changes is not good.
Tenant representatives can play a critical role in lease renewals. They can determine if an existing space is still suitable for a company and negotiate the renewal to get what a company needs in order to stay in that space.
Is A Tenant Rep Really Necessary?
Landlords sometimes frown upon lessees using tenant reps for lease negotiations and even claim that rent will be higher as a result. Experienced tenant representatives know how to deal directly with landlords and not another broker. It costs the landlord nothing and provides the tenant with the expertise necessary to efficiently negotiate a new agreement. Without representation, most tenants don’t know how to negotiate a renewal. Tenant reps make sure their clients best interests are part of the negotiations, which is why landlords often view tenant representation negatively.
The most important result of working with tenant representatives is negotiated rent. Yearly rent increases are common yet they should still be based on fair market value. A new lease is still a new lease, even if the tenant remains the same. In commercial real estate, tenants at lease renewal have the right to expect any concessions available to new tenants. This often means additional improvements, free rent offers, and other provisions. The only thing that usually changes over the period of a lease is a company’s actual needs, which is why renegotiating is so important.
Need to Move vs. Need to Stay
When it is time for lease renewal, a company and its tenant reps should re-evaluate business goals, finances, profit and loss, future business plans, projected growth, and any problems with the leased space. With a more current business snapshot, tenant representatives can negotiate for lower rental fees, favorable lease terms, additional improvements, and other needs or requests. With a landlord/tenant relationship already established, it is the perfect time to negotiate. New requests or older missing ones carry much more weight, especially if there is a real option to lease elsewhere.
The important thing to keep in mind with lease negotiations is that landlords want to renew for as long as possible, at the highest fee possible, with as few concessions as little as possible. Businesses have their own needs and for their own protection, should work with qualified tenant representatives at lease renewal time!
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