Why are you getting a worse deal on your lease renewal than new tenants?

Because landlords know that ~70% of their tenants will renew their leases.  So, if you don’t put your landlord on notice that you are considering other options or don’t give yourself enough time to consider alternatives, you’ve lost the negotiating leverage that a new tenant would have.

The three biggest mistakes you can easily avoid:

  • Dealing directly with the landlord
  • Leaving a renewal negotiation until it’s too late
  • Not finding alternatives

Dealing directly with the landlord

Put your landlord on notice that you are considering alternatives.  The most effective way to do this is to hire a tenant representation broker to represent you on your lease renewal.  Why? Because any landlord that deals directly with a tenant knows it’s a near certainty that the tenant will be renewing and the landlord has all the leverage.

Good tenant representatives will create leverage by getting market proposals that will cause the landlord to agree to the most competitive terms and conditions possible.  In other words, treat you as if you were a new tenant.

The landlord pays tenant representative fees so there is no cost to you.  But be diligent in selecting a tenant representative that adds value.  For example, have your tenant representative complete a lease audit during the renewal process.  This is a very effective way to put your landlord on notice that you intend to seriously consider alternatives before renewing.

Leaving a renewal negotiation until it’s too late

The earlier you start the renewal process and negotiation, the greater your leverage.  Being early and proactive about alternatives is a powerful negotiating tool.

Most tenants underestimate the time and effort required to find alternatives. There are many factors that will impact the timeline including but not limited to the size space you need, market conditions and availability, negotiation time, space planning, lease documentation, permits, and build out time. In general, if you are looking for less than 10,000 sf you should work backwards from your desired move-in/renewal date and allow at least 4-6 months for your search. If you are looking for more than 10,000 sf you should allow at least 6-12 months.

The later you start researching alternatives and negotiating your renewal, the higher the certainty in the landlord’s mind that you will be renewing.

Not finding alternatives

Treat every renewal exactly as you would relocation.  Whether or not you plan to renew your lease you must find other alternative to create leverage with your current landlord.  Evaluate your current space against several options.

It has likely been 3/5/7 or more years since your last lease so the renewal process is a good time to reassess your current business and real estate objectives.  Planned growth, location, transportation requirements, parking requirements, estimated space requirements, optimal space configuration, technology requirements, timing and budget are important to determine before you start.

Work in tandem with your tenant representative broker to identify on-market and shadow spaces that are not on the public market. Create a game plan for discovery of all the on-market spaces via real estate databases with your tenant representative. Reach out with a direct contact program in your target market area or target buildings through landlords, property managers, other tenants and leasing agents to identify off-market spaces. Set up a social marketing communication and an email process to spread the word about your space requirement.

Determine the right amount of space.  Make headcount projections for the expected term of the lease. Then, consider options so that around 2/3 or 3/4 of the way through the term you start reaching the occupancy limit.  Look for spaces that are more efficient, like rectangular spaces versus angled corners of a building. No two spaces with the same square footage are the same. Floor plan and layout matter.

Thoroughly researching your options will give you a Plan B in case you aren’t able to work out an agreement with your current landlord.  There is no negotiation leverage if you aren’t willing to relocate.  So, treating your renewal exactly as you would relocation will give you the negotiating leverage that a new tenant would have.

The Mehigan Company provides corporate real estate services including tenant representation. For our complete roadmap: How Do I Find Office Space?