THE HIDDEN BENEFITS OF LEVERAGING A REAL ESTATE PROFESSIONAL
April 14, 2021
Five Common Lease Renewal Pitfalls
If your term is about to expire and you think renewing is as simple as calling your landlord and extending your current terms and rate, then you may want to read on because we’ve got some news for you. The truth is, negotiating a lease may put you in a costly trap, whether you try to do it yourself or hire a professional.
A renewal may represent an opportunity to:
- Save money
- Modify key lease terms
- Make facility upgrades
- Improve business performance
However, when negotiating without knowledgeable and professional representation, this opportunity is often lost.
This is because many parts of the process are not widely known to tenants (or even brokers), but rather, they come from the experience of dealing with landlords on a weekly, or even daily, basis. And if you fail to get it right, you may be stuck with your situation for 5 or 10 years, or maybe longer. This is something we’ve seen when approached by businesses looking for help because they can’t afford to make the same mistake twice.
From inadequate requirements, compromising to meet deadlines, stressing over uncertainty, or getting locked into overpaying… the space you occupy should be the least of your operational worries.
We’ve seen Five Common Costly Mistakes that tenants and users make when renewing their leases, and while you may not be able to execute on these items in real-time in a boardroom (and we wouldn’t recommend going without a broker who is a leasing specialist) you should at least be aware of them.
Taken individually, they may only have minor impacts on the transaction. However, a combination of many (or all) of them can spell disaster to the end result.
Today, let’s examine one of the five common issues we see Tenants face during the lease renewal process.
Major Pitfall #5: Thinking DIY Will Save You Money
Some things in life are generally accepted as must-haves. Things such as investing in insurance, or deferring to legal, medical, or accounting professionals to provide you with subject matter expertise and liability in case of negative outcomes.
You may file your own taxes, but you probably wouldn’t prepare an audit case before the CRA or IRS…
You may generally understand how the legal process works, but you likely wouldn’t represent yourself in a proceeding…
Then why do some businesses believe they can do it themselves when acquiring or leasing commercial real estate?
The reality is that occupational decisions can directly impact the top and bottom lines of your business. It can become the bedrock you rely upon to push past economic downturns; or it can become a liability exposing you to unnecessary risks.
It is important to note that utilizing the services of a professional broker is built into the pricing model, and, at the very least, a broker will earn their pay in direct proportion to the amount of value they can create in a deal.
Regardless of this fact, landlords typically calculate brokerage fees into the cost of owning and leasing their properties. When tenants negotiate renewals directly, many assume the landlord passes this commission savings on in the form of a reduced rental rate or concession. However, by self-performing, tenants give up market leverage and forfeit vital market information that could radically impact the landlord’s renewal proposal.
Like any new business, it is not in the landlord’s interest to reduce its return, and what your landlord may propose as savings on broker fees is often a fraction of the value a savvy real estate professional can provide.
Bottom Line: If you are a Tenant looking to minimize real estate costs and find the best possible solution for your operational requirements, then reach out to a broker or team and let them take care of you while you focus on what’s most important – your business.
Summary
Overall, Tenants and Landlords of commercial space are constantly looking for opportunities to minimize costs and risks associated with their real estate footprints and portfolios.
A lease renewal is a part of any Tenant’s experience as an occupier of commercial space. Aside from purchasing space or relocating, there is little chance of avoiding it. The good news is, the process can be done proactively and leveraged strategically to gain an edge at the negotiating table. Competitive rents, favourable terms, and even concessions – such as Tenant Improvements – are all items which can be pursued and which may be obtained.
