Commercial leasing is a very competitive market for both the tenant and the landlord. There are only a certain number of available spaces and only so many tenants available to lease those spaces, all with the same goal of getting the most space for the least amount of money. Landlords can achieve this a concept known as “captive tenants,” who are tenants that need to renew at their current locate and often must accept less than what a new tenant might receive for the same property. To avoid this kind of situation, it is essential to work with an experienced commercial real estate broker, acting as a tenant representative. A good tenant rep can avoid a captive tenant situation and help tenants get the best lease renewal possible.
What Is A Captive Tenant?
According to commercial real estate brokers, captive tenants are those that renew a lease with the same landlord and do not negotiate for the best renewal agreement possible. This usually happens for two reasons: #1 tenants do not realize they have the right to negotiate a renewal the same as if were a new lease or #2 tenants do not negotiate since moving to a new building would be time consuming and costly.
Experienced tenant representatives that landlords in this situation know that they control the negotiations, a situation that favors the landlord more than the tenant. Basically, tenants are forced to accept what seems like non-negotiable renewal terms when there is actually a lot of room for negotiation. In reality, a landlord does not want to go through the demands of a new tenant wanting new improvements with a new lease contract.
How to Avoid Becoming A Captive Tenant
To avoid becoming a captive tenant in a commercial leasing situation, a tenant must first recognize when it may be a better choice to move rather than be captive in a less-than-perfect lease. When it comes time to renew a lease, a tenant should hire a good tenant rep to help them through renewal negotiations. The object is to negotiate for additional improvements or other needs, without actually having to move. Unless a landlord truly understands the tenant will leave if there are no negotiations, they will be less likely to negotiate. Providing research of current market and renewal trends as well as proof of the availability of space with a more agreeable landlord is an important part of negotiations.
The Truth About Lease Renewal Negotiations
Lease renewals should involve more than signing a new contract for an additional year. As any commercial real estate broker knows, tenants who renew a lease are entitled to the same things as new tenants, meaning negotiation of lease terms, lease fees, additional improvements, and anything else that a tenant needs. This is a detail that landlords hope tenants don’t realize. An experienced tenant rep is familiar with the local commercial leasing market and can get the best deal for their tenant clients.
To avoid becoming a captive tenant requires a patient tenant as well as a tenacious tenant representative from a local commercial real estate broker firm who knows negotiating leverage for the situation. To stay in control of lease negotiations, a tenant should be prepared to relocate if compromise becomes impossible, as there are better options available. Leaving a leased space is not the goal, and tenant representatives understand this. Working out an agreeable deal with a landlord – who also does not want to have to find a new tenant – is the goal and generally the result when a tenant decides to stand their ground!
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