Lease Renewals

Almost every business, when they first sign a lease, negotiate an option to renew the lease. Typically, the only thing that changes with an option to renewal is the amount to be paid in rent. And if you don't do your homework, you'll end up paying more than you need too.

But, if a company does its homework early enough (a company can hire a broker to do the homework for them, as they should and early enough is 2 years before the lease ends), then the savings can be remarkable. Homework entails developing options, which means going out into the market place to look at your current landlord's competition. In your market, a lot could have changed in the past several years.

A company should absolutely hire a commercial real estate agent. They are more likely to know the real estate market. They should know what the lease rates are at the the building your in, as well as what the lease rates are at the building up the street, down the street, and especially that new building that was just completed just two months ago that is now desperate to get some brand new tenants.

And why should you begin to look at options two years out? Well, it's because commercial real estate is relatively slow moving, and more importantly, you don't want find yourself panicking because you've trapped yourself into a time crunch. Generally, to excise your option to renew, you have to let the landlord know 6 to 9 months in advance. That means, you have to know what your options are that far in advance while also leaving some breathing room to negotiate with your current landlord. And to know your options, you have to leave enough time to tour a couple of competing buildings, negotiate LOIs to find out how good of a deal you can get compared to their asking lease rate, and maybe engage in some space planning as well.

But once you know your options, once you've become educated on the real estate market, you are then in a significantly better position to begin negotiating your lease renewal.

Instead of finding yourself agreeing to renew at whatever rate the landlord asks, which is often higher than what a brand new tenant would pay, you can instead negotiate. Being able to say, "We've looked at a number of alternative locations, all of which are less than the rate you've just proposed. Attached is the LOI we've negotiated with that building down the street. A year ago, they remodeled their lobby and now offer a shuttle service to all of those new and exciting restaurants. But, if you match their rate, we will stay," will result in a completely different conversation. By doing your homework, you regain your negotiating leverage.

I hope the discussion above has made it clear why it is worth your wild to have a professional advocate on your behalf. As both a commercial real estate attorney and commercial real estate agent, I can make sure your interests are protected.

If you have any questions or comments, send me an email to bdalton@tigusa.com. Also, if you know anyone looking to buy, sell or lease space in Dallas or the surrounding areas, I do appreciate referrals.