This guest post is by Carrie Wood, Co-founder at Lease Ref.
Commercial real estate decisions and lease renewals are typically only made by businesses every 5 or 10 years, since those are the typical lengths for lease terms.
Unfortunately, that does not bode well for the tenant who wants to negotiate a fair lease renewal, especially when their landlord likely owns other properties and negotiates commercial leases every day. Not to worry, though – it’s just one of the most expensive and least understood contracts that a typical business will sign!
So how can a tenant level this playing field? How can business fight back, punch the landlord in the mouth and enjoy every minute of it?
To answer that, we have to dissect exactly why a landlord typically has the upper hand to begin with.
Negotiating leverage boils down to one point – he who cares the least wins.
Here are the reasons why most landlords start out caring the least:
- 90% of commercial tenants renew their lease. It is simply a huge pain that most businesses try to avoid. It is a distraction, costly and businesses could suffer employee attrition.
- If you get to the stage in life where you own commercial property, you are probably doing well and one single tenancy does not make or break that wealth.
- Although your lease and space are very important to you, your tenancy is usually just one of many in the building, and the landlord may own many more buildings.
- Projecting indifference leads to more negotiating leverage so even if a landlord is weak they will attempt to appear as strong as possible.
Simply put, you must create a situation in which the landlord does not lump you in with the other pricing-taking renewing tenants. It must be very clear to the landlord that you have one foot out the door and you are ready to seize other opportunities if not treated fairly on your lease renewal.
How do you do this?
Start Early. The proactive tenant sends a clear message that you are interested in other alternatives and you enjoy and embrace the process of investigating other options for your business. Instead of focusing on the pain of moving, talk to your landlord about the benefits other locations offer and that you must consider alternatives alongside with considering renewal.
Hire a Broker. At the very least tour with many listing agents. Get to know competitive options and off-market opportunities as well as the desperate landlords who are willing to offer below market deals. Let them know that you are also happy to renew your lease so that they will offer their best deals to entice you to relocate.
Name drop and number drop. When negotiating the renewal, ensure that you work into the conversation other options that can work and why. Mention specific landlords and listing agents. Even if the landlord is offering the lowest rental rate, mention that you could also downsize to a smaller unit to save money. Your market knowledge will bring legitimacy to your threat to move and now the landlord’s ego will be involved. If he tried to seem like he didn’t care if you renewed or not, once you mention a competitor’s building that you could move to it is now personal and most landlords hate to lose out to their competition.
Learn the Other Lease Terms. While portraying market stats is great, the real value in negotiating a lease is the other items besides the rental rate. By doing some homework on other terms and conditions, the landlord will know you are not the typical tenant and will be more wary of trying to trick you on hidden clauses and costs.
This article was written by Carrie Wood, Co-founder at Lease Ref, the world’s best online portal for businesses who rent commercial space. Leasref.com levels the playing field for commercial tenants.
