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 I’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, or
- Improve business performance.
However, when negotiating without knowledgeable and professional representation, this opportunity is often lost.
That’s because many parts of the process aren’t 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 get it wrong, you’re 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.
Now, 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, we are in the third issue of our series on “Renewing Your Lease In Your Favor and On Your Terms,” so let’s dive right in…
Major Pitfall #3: Undervaluing Landlord’s Risk
Who Has More to Lose… You or Your Landlord?
When selling anything, identifying your prospects’ pains and positioning your product as a solution to them creates demand and a willingness to pay.
Landlords know this.
They are extremely sophisticated and experienced when it comes to dealing with tenants and ensuring their portfolios are as fully leased as possible.
They might shine light on the fact that moving is expensive. There are hard costs to transporting equipment and machinery, relocating your workforce, refitting your new space, as well as all of the other risks that come with negotiating a new lease.
Then there are soft costs that come from a loss of productivity, interruption of operations, and an overall slowdown in momentum in your business.
When a landlord positions a quick renewal as a way to avoid all that, their implication may be that if you don’t accept immediately that you will lose your leverage on the renewal. That is not always the case, or at least, it is not always that simple.
See, landlords can not always afford to have you relocate. A terminated or expired lease means hard and soft costs for them as well. Lost income streams, as well as the cost of marketing and advertising their space to find a new tenant are two obvious drawbacks. Prolonged vacancies can add up to millions in expenses and lost revenue.
Further, landlords have to consider their debt service, operating expenses, taxes, and being in a position with less leverage. In order to induce a new occupier to settle into a vacant space, they may have to give up concessions in free rent, tenant improvement allowances, or terms… things they might have told you they would not be willing to do.
And so, being aware of these things is the first step in gaining leverage when negotiating your renewal. Understanding what is at stake for those sitting at the other end of the table is something that an experienced leasing specialist and tenant representative can help you with.
It is part of the strategy and plan we provide our clients when assessing their needs and executing the process to renew their leases to the best of our abilities.
If that is something you may like to discuss, please call us today for a no-obligation assessment or lease audit.
Daniel Smith is the Vice President and Principal of Lee & Associates Toronto, specializing in the acquisition, disposition, and leasing of industrial properties, as well as providing clients such as local and national corporations, landlords, and developers with a full range of real estate services.
ABOUT LEE & ASSOCIATES
Lee & Associates is a commercial real estate brokerage, management and appraisal services firm. Established in 1979, Lee & Associates has grown its service platform to include offices in the United States and Canada.
Lee & Associates provides superior market intelligence in office, industrial, retail, investment, and appraisal to meet the specialized needs of our clients. For the latest news from Lee & Associates, visit leetoronto.com.
To get clarity and direction when looking for space or going through a lease renewal, or to discuss any other real estate needs, please contact Daniel at 416.628.8173 or email at email@example.com.