When it’s time to renew the lease on your massage practice space, you might worry that your landlord will raise the rent—due to tax increases, inflation or increased demand for your location. You don’t have to come out of the process paying more money. Armed with these negotiation tips, you might be able to renew your lease and rent for less.
Get organized and do your homework
Getting organized and beginning the lease renewal process should start nine to 12 months in advance for commercial tenants leasing retail or commercial space. You don’t have to wait until the end of your lease term. If your landlord is stalling you, this generally means he’s got a nasty surprise—such as a rent increase or eviction—waiting for you.
In most cases, you should not need to exercise your lease renewal option clause, provided there has been a dialogue with your landlord and it has been established that the landlord wants you to stay for another term.
Since many commercial tenants don’t know who their landlord really is, your homework should include research to learn more about the person. Start with a simple Google search of the landlord’s name and the property’s name. You want to find out information such as how many commercial holdings the landlord has, any news about recent growth or expansion of the landlord’s business, and the geographical location of the landlord (or landlord’s agent), which may be far away from you. The landlord’s company website or social media pages might also tell you a lot. For example, posting photos of employees can suggest the landlord is more open to communication than someone whose site has less of a personal touch.
Talk to other tenants
When I coach clients, I will interview tenants in their building, to share information and determine their future plans. If other tenants are not planning to renew their leases, thereby creating more vacant space in the property, you will have more leverage when you negotiate. If another tenant has renewed a lease, the rental rate that tenant agreed to pay will likely factor into the rental rate the landlord expects you to pay.
So many commercial tenants go straight to their landlord regarding their lease renewal. My partner and I like to create competition for our tenant clients: Instead of handing over your lease renewal to your landlord on a silver platter, we find alternative locations and solicit lease proposals from other landlords as a means of making your existing landlord re-earn your tenancy. If you want to rent for less, you have to let your landlord know you are willing to take your business elsewhere.
Size up your opponent
Confirm who the right person to negotiate with is. You may have entered into the lease agreement negotiating with a commercial real estate agent for the landlord’s in-house representative; however, most lease agreements are negotiated with a property manager, who you may or may not have a good, bad or any relationship with. Size up your opponent as you position yourself for the lease renewal process.
Get a proposal
Don’t negotiate on the first date. By discussing the lease renewal with the property manager and inviting a proposal, you are then in a better position to counteroffer and negotiate. Most of the negotiating process will take place verbally—but only after the lease renewal proposal or document has been provided by the landlord.
Take your time
Multiple counteroffers from both parties are part of the lease renewal process. If you try to slam-dunk the lease renewal too quickly, your attempts for a rent reduction will probably fail. We recently negotiated a lease renewal for a lawyer who was pleasantly surprised by how effective it was when we deliberately slowed down the process and renegotiated every single term in the lease agreement.
To rent for less, negotiate to win
Most commercial tenants are not negotiating to win at all—they are negotiating not to lose. The good news for you is that it is extremely expensive for a landlord to replace an existing tenant. By the time he pays real estate commissions, changes the look of the unit, puts in tenant allowance money and so on, he’s spent a lot of money. Letting you rent for less might actually be cheaper than finding a new tenant.
If the landlord is giving lease inducements—e.g. free rent, tenant allowances—to attract new tenants, we believe the landlord should offer those same incentives to you to entice you to stay. You are the repeat customer. You have the track record of paying rent.
A good boxing match doesn’t go two rounds; it goes nine to 12 rounds. Negotiation is not an event, but a process. Some of the best deals commercial tenants have gotten took four to six months to finalize. Even if you don’t have that much time left on your lease, usually you can hold over month-to-month without paying excessive penalties.
It is important to compromise at times. You can counteroffer, and throw in a few red herrings—things you don’t really care about and can readily give away. For example, you might ask for three renewal option terms when you’ll settle for only one; an expanded permitted use clause that would allow a chiropractor or acupuncturist to work with you in your space; or more convenient parking. While your landlord may refuse to provide four designated staff parking spots directly in front of the building, he may well agree to provide two; or he might offer four designated staff parking spots elsewhere.
Ask for more than you expect to get. For example, one tenant got 12 months of free rent on a five-year lease term, after her lease negotiators asked for 18 months of free rent.
Finally, you will conclude the lease renewal process by signing the lease renewal document; and if your negotiations don’t work out, you still have time left to relocate. Ideally, you will have done all of this in six months and given yourself a cushion. Lease renewals for tenants may be negotiated up to 24 months in advance.
In commercial leasing, tenants don’t get what they deserve—they get what they negotiate.
Dale Willerton—The Lease Coach (www.theleasecoach.com) and partner Jeff Grandfield are commercial lease consultants who work exclusively for tenants. They are also professional speakers and co-authors of Negotiating Commercial Leases & Renewals for Dummies (Wiley, 2013). For a complimentary copy of their CD, Leasing Do’s & Don’ts for Commercial Tenants, email firstname.lastname@example.org.