Five years ago, few anticipated that the commercial real estate market would collapse the way that it did. Rental rates have dropped by more than 20 percent in some markets, and the rights that a tenant has in its lease may not give you an equitable deal. For both the landlord and the tenant, having a specific real estate negotiation strategy for when a lease is up can provide a way to facilitate successful negotiations that keep both sides happy.
Incorporating these tips for negotiating lease renewal are bound to make the process go much more smoothly:
- Know your lease’s renewal language 12 months in advance: Establish ticklers for critical dates and discuss your options with your broker and attorney.
- Conduct market research and know your renewal criteria: What functional elements will you need in the space three or five years from now? Collect recent market comparables and know what the new tenants nearby are paying in rent and won in concessions related to lease term, free rent, improvement allowances and sublet flexibility.
- Issue RFP’s to other landlords and to your current landlord: If you have an renewal option in your lease, decide if you are going to accept it or challenge it. Always get two or three other proposals from competing properties—you will be surprised at what you learn.
- Develop a negotiation strategy: Understand what the potential issues may be for both in the mind of the tenant and in that of the landlord in terms of what is important for both. Reach conclusions on your optimum real estate negotiation strategy in terms of what you want in relation to the length of the lease, rental rates, responsibility for repairs and maintenance, and sublet options. Having this set in your mind prior to negotiation will help you maintain your position.
- Build on the trust that exist in your current relationship: Communicate regularly throughout the process to minimize any potential misunderstandings or issues that arise.
Our Prepared to Win-Win™ negotiation worksheet, which can be found under the Resources tab of our website, provides both parties the clarity needed to put these tips to work resulting in each other’s desire for a long-lasting relationship.