Are you ready to rumble … with your landlord? By anticipating, preparing and bringing in expert help, you can renew your lease with far fewer headaches and even receive valuable tenant inducements from your commercial landlord. Here are a number of common mistakes I have seen made by many massage clinic tenants; don’t fall into the same traps.
1. Failing to allow sufficient time. Lease renewal negotiations should begin between nine and 12 months before the term expires. This will give you sufficient time to do your homework and look at other sites. If you can’t get a decent renewal rate, would you rather find out you need to move with six weeks or six months left on your term? Time will be your ally or your enemy, depending on how you use it.
2. Undermining your bargaining strength. Several factors will determine your bargaining strength in respect to negotiating a lease renewal. These include the overall vacancy rate of the building and recent tenant turnover. Your clinic size in relation to the entire property is relevant. It is not so much whether you occupy 1,000 or 3,000 square feet, but what percentage of the building that counts. Your business history is also important. For example, hair salons are plentiful while pet stores are not; therefore, a pet store should command more favourable lease terms.
3. Keeping quiet about what you want. Recently, a tenant came to me hoping I could negotiate a $500 per month rent reduction for her business. During the ensuing months, I met with the landlord and insisted on a $1,000 per month reduction. Eventually, my efforts paid off with an $800 per month rent reduction or approximately 25 percent less than the tenant had been previously paying. Ask for more than what you want or need when negotiating other terms, including free rent, signage, leasehold improvement and so on. The worst the landlord can do is say “no.”
4. Overlooking renewal options. Do not forget to negotiate your renewal option(s) in advance and specify that it (they) be assignable. Some leases state that renewal options cannot be transferred, thereby making it difficult to eventually sell the massage clinic business. Stating that the renewal option be for up to five years, for example, will give you more flexibility if you want to renew for two more years instead of a full five years. Better yet, have an experienced lease consultant advocate for you. Renewal option wording can be tricky.
5. Allowing your landlord to retain your deposit. If your lease agreement requires you to make a deposit for the initial lease term, it is not acceptable for that deposit to continue indefinitely. Ask yourself, are you a security risk? Have your rental payments been made promptly? If so, resist further security deposits and make sure you state this amendment in the renewal amendment. Otherwise, your deposit, which was to be applied to the last month, needs to be replaced for the renewal term.
6. Neglecting to anticipate your lease assignment. Landlords anticipate you will eventually sell your massage clinic business and you will want to assign your lease agreement—you should, too. Most lease agreements say the landlord can unilaterally terminate your lease agreement 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 knowingly agree to it, then negotiate for changes.
7. Failing to negotiate for renewal term free rent. Years ago, massage tenants were accustomed to renewing their leases with little or no landlord incentives. Today, receiving free basic rent (as part of a renewal package) is achievable. If you are closing for renovations, this period of time should definitely be rent-free. Your business success will depend on the vacancy rate and your willingness to move. If the landlord is frequently enticing new tenants moving into the property (say with three months free rent), why should he/she not give existing tenants the same amount—or even more—free rent to stay?
Dale Willerton is The Lease Coach and a senior lease consultant who works exclusively for tenants. Willerton is a professional speaker and author of Negotiate Your Commercial Lease or Renewal. Do you have a leasing question? Need help with your new lease or renewal? Call Willerton at (800) 738-9202, e mail DaleWillerton@TheLeaseCoach.com or visit www.TheLeaseCoach.com. For a free CD, titled Leasing Do’s & Don’ts for Massage Clinic Tenants, e-mail Willerton.