As The Lease Coach since 1993 and co-authors of Negotiating Commercial Leases & Renewals FOR DUMMIES, we have found that retail tenants often leave a lot on the table when negotiating a commercial lease renewal. One of the biggest mistakes is assuming that everything will go smoothly. Rarely do things ever go as planned and you always have to account for Murphy’s Law. Renewing your commercial lease takes just as much time, effort, negotiating expertise and careful consideration as your initial lease – if not more! The following are just five of the most common oversights we have witnessed of retail tenants … please don’t make the same mistakes!
Allowing the Landlord to Retain Your Deposit
If your lease agreement required you to make a deposit for the initial lease term, then it is not acceptable for that deposit to continue indefinitely. Ask yourself, are you a security risk? Likely not! Have your rental payments been made on time? The Lease Coach frequently successfully negotiates for a reduced or returned deposit at this time.
Not Allowing Sufficient Time
Lease renewal negotiation should begin twelve to fifteen months before the term expires. This will give you sufficient time to look at other sites and do your homework. Remember, you are the landlord’s customer and it is the landlord’s job to re-earn your tenancy. By “shopping around”, evaluating other sites, and collecting written Offers to Lease from other landlords, you are – effectively – creating competition for your tenancy and will be more prepared to move – if need be. If you can’t get a decent renewal rate, would you rather find out you need to move with twelve weeks or twelve months left on your lease term? Time will be your ally or your enemy, depending on how you use it.
Undervaluing Your Bargaining Strength
Several factors will determine your bargaining strength with respect to negotiating a lease renewal. These include the overall vacancy rate of the building and recent tenant turnover. Your size in relation to the entire property is relevant. It’s not whether you occupy 1,000 or 5,000 square feet, but more so what percentage of the building you represent that counts – the bigger your percentage of the building you occupy the bigger the impact your vacating would have on the landlord. Your business history is also important. If you have remained a long-term tenant in the commercial property, your landlord will value your tenancy.
Missing Out on Lease Renewal Allowances
Retail tenants often don’t consider getting a tenant allowance on their lease renewal term. Approximately 75 % of our clients get a tenant allowance on their renewals. Remember, if the landlord is giving allowances to new tenants coming in, then why shouldn’t you get an allowance too? After all, your tenancy is proven, plus there is much less risk for the landlord putting cash into your renewal than taking a chance on a new tenant. We also often get the retail tenant free rent while the renovations are being done.
Not Keeping Success Quiet
One of the main reasons a retail tenant will be forced into a rental rate increase for a renewal term is the landlord’s belief that the retail tenant can afford to pay it. The more successful your business is, the quieter you must be about that success. It’s important to stifle your staff, as they are the ones who frequently tip off the property manager that you don’t want to move. While a commercial landlord won’t accept any blame for poor performance, he/she will take credit (and rental increases) when times are good for the tenant.
Retail tenants are often at a disadvantage when negotiating (or renegotiating) with a commercial landlord. Retail tenants specialize in a specific product or service offered and customer service while landlords (and leasing agents) negotiate lease deals every day for a living. If ever in doubt, hire a professional to advocate for you, represent your best interests and to get you the best lease deal possible. Remember, in commercial leasing, retail tenants don’t get what they deserve … they get what they negotiate!
For a copy of our free CD, Leasing Do’s & Don’ts for Commercial Tenants, please e-mail your request to JeffGrandfield@TheLeaseCoach.com.
Jeff Grandfield is a senior consultant with The Lease Coach. Grandfield completed his honor’s degree in business administration with a designation in Marketing from Wilfrid Laurier University. It was the challenge of the real estate industry and satisfaction of working with business owners of all types and sizes that drove Grandfield to join The Lease Coach in 2005.
Dale Willerton owned a number of businesses requiring him to be a commercial tenant before getting into commercial real estate. His interest in commercial real estate led him to work for landlords as a shopping centre manager where he leased space to tenants. In 1993, Willerton realized it wasn’t landlords who needed his help, it was tenants. Therefore, Willerton switched sides and became The Lease Coach.