Tips to Renegotiate Your Commercial Lease & Potentially Save $$$
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It’s been almost five years since you started your company, and you’ve done better than most companies out there… you’re still in business. As you move forward you have many things to consider. One important, but often overlooked, area of business is the commercial lease. A commercial lease can be one of the biggest investments for a company with larger leases costing millions of dollars over the lease term. Savings for these larger leases can amount to hundreds of thousands of dollars when negotiated correctly.
The first step to understanding your options is hiring a commercial real estate agent experienced in representing tenants for new leases and lease extensions. Why hire an agent? Although you may have been through several lease negotiations for your company, a good agent will have done hundreds of leases, and understand the intricacies of the negotiations better than anyone else, often times even more so than the landlord. More importantly, a commercial agent will have information on current deal flow, what the market is bearing, what concessions you and other landlords in the area are getting, as well as comparable lease rates. Usually this information is not available to the layperson.
So, you now realize the import of an agent, but you are worried about the cost. This may be short sighted on your part. A good agent will look at your lease renewal option and determine if it is best for you just to exercise it, if they believe they can help you save money or get a better deal, then they will move forward. You have nothing to lose. A little secret is that most landlords have already anticipated paying a commission, and many times, a commission is already to be paid to the original broker if you exercise your option, and in fact, most landlords understand that paying a tenant’s agent’s fee is better than running the risk of losing a good tenant. Again, you have nothing to lose by having a commercial agent review your lease options.
When to start negotiating? Don’t wait for the last minute. Most lease options have a clause that you must exercise the option within three to six months of the lease expiration, and often times as much as nine months out. A landlord knows that it takes time for a company to find a space and move, so if you wait until the last minute, the negotiating power is all on the landlord’s side. Instead begin talks with your landlord up to a year prior to your lease expiration. This way, the negotiating power is more equitable, and if the landlord is being unrealistic in their terms, it allows you to explore other options.
Case Study –
A few years back we were representing a large international clothing manufacturer for their high-end retail expansion. During that time, we located and negotiated about ten retail locations for them. Even though this company had been around for a while, they still made the mistake of negotiating their office and manufacturing facility lease directly with their landlord, using in-house attorneys. The ownership of the company came to us and asked if we would “take a look” at their lease prior to them executing it. When we did, we realized that although the lease itself was negotiated well, the economics of the deal could have been a lot better. Luckily, they were a very strong tenant and landlord wanted them to stay. We were able to contact the landlord and were able to renegotiate their lease extension, saving the company over $600,000 over the term of the lease, with the landlord paying our commission. We were very lucky in that situation, as they had already negotiated the extension with their landlord, but due to the strength of the company, and leverage we had with knowing the landlord wanted them, we were able to write a new lease.