A lease renewal presents an opportunity for tenants to examine their commercial lease agreement. It’s a good time to look at the market, alongside any other relevant external factors, and use that information to potentially negotiate better terms.
Tenants who position themselves as well-informed, with a better understanding of their leasing options, usually secure much better deals than their seemingly uninformed counterparts.
1. Monitor the Market Before Your Commercial Lease Agreement Expires
As a business, rent is one of the most significant costs, which is why it pays to be proactive about negotiating better terms. Changing economic conditions may offer the opportunity to renegotiate your lease early. Knowing the market means keeping abreast of:
- The price at which comparable properties are offered for rent
- Incentives available in the market
- Level of demand from tenants to lease premises similar to yours
- Number of similar properties available
Review your lease regularly and aim to approach your landlord months before it expires. Be sure to check your lease carefully for the time limits which apply to the exercise of options to renew the term of your lease. Consider seeking advice from a property or commercial lawyer leading up to negotiations. The commercial real estate market is ever changing, so you should keep monitoring for potential opportunities to save. Having more time for negotiation is always an advantage.
2. Be a Good Tenant for Better Commercial Lease Terms
Being a good tenant is one of the surest ways of ensuring negotiations are successful. For example, pay rent on time, take good care of the premises, be a reliable tenant and make things worry-free for the landlord. Almost all leases will state that if you breach the conditions of your lease (such as having rent overdue or neglecting the upkeep of the premises), then the landlord may not have to accept your exercise of an option to extend the term of the lease or refuse to negotiate a new lease. Maintaining a good relationship with the property owner is the best foundation you can have for negotiating better commercial lease terms.
3. Consider Landlord Benefits in a Lease Renewal
Landlords gain significant financial benefits by renewing commercial lease agreements with existing tenants. When a tenant leaves, the landlord suffers a loss in rent and incurs additional expenses in marketing the vacant space and/or making updates or renovations to the space.
The fact that your landlord benefits from you staying gives you leverage for a successful negotiation. However, you must consider the landlord’s overall position, including their portfolio and the market value of your lease. Know the dollar figure of savings associated with keeping you on as a tenant and leverage that information when renewing your lease.
4. Research Alternative Commercial Leases
Whether you intend to stay in your current space or plan to move elsewhere, take the initiative and research other commercial spaces and landlords in the market. Market conditions and availability may have changed since you signed your last lease. Other commercial landlords may offer better terms, lower rates and taxes or more desirable amenities. Bring these factors to the table during the negotiation process, creating incentives for your landlord to make you a better offer.
Experienced Property Lawyers in Melbourne
For advice about negotiating your commercial lease agreement or any other relevant issues, contact the team at McNab McNab & Starke. Our team of property and commercial lawyers, David Skeels and Ian McNab and conveyancers, Katarina Perkovic and Phi Nguyen can offer advice on a wide range of property related legal matters.
Call us on 03 9670 9691 or use our online contact form to discuss your commercial lease contract now.