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A Tenant’s Lease Renewal Guide

The Best Way to Renew Your Lease

Lease renewals are the most common commercial real estate transactions. Unfortunately for Tenants, there is not easily accessible data to show what types of deals Landlords are offering on renewals AND there is a big misconception that Tenants who want to renew their leases and stay in their spaces are powerless.

So, this begs the questions, what is the best way to renew a lease, or how does a Tenant keep an equal power balance during the transaction? The following is a quick guide to help Tenants best understand their options, because an educated Tenant will ultimately make the best real estate decision for their business.

#1. Keep Track of Important Dates in the Lease

Not only does a Commercial Tenant need to keep track of their lease expiration date, but often commercial leases will have lease renewal options too. Some lease renewal options will have renewal terms already defined for the extension period, while others will be more vague, with language such as “market rental rate.” However, in most cases, the Tenant will be given a date at which they need to exercise their option to renew their lease, or the ability to exercise it will expire.

A Tenant needs to understand that even if they have the option to renew, they should still enter the market to see what terms other Landlords are providing. There is no rule that the Tenant must take the renewal option deal, and many times when provided other market data, a Landlord will allow a Tenant to renew with modified terms or additional tenant improvements that weren’t addressed in the option.

Furthermore, understanding the key dates inside a lease is important, because timing is key. To get the best deal, the Tenant needs to find and negotiate multiple viable options. In a negotiation, the party with the most options wins the better terms. Finding and negotiating alternative options takes time and effort but will pay off in the long run, because a Tenant will then know the market as well as the Landlord.

We always advise starting the evaluation process 12 months prior to lease expiration or ample time before a Tenant needs to exercise their option. Our team has successfully negotiated over 1,000 commercial lease transactions, and Tenants who capitalize on timing typically get the better deal. For optimal timing, a Tenant should be ready to make a decision to extend their lease or relocate approximately 6 months from their lease expiration. This is crucial, because after doing the research and understanding the costs related to a move, the Landlord will know that the Tenant has done their homework, knows the market, and is therefore encouraging them to compete for their tenancy.

#2. Contact a Good Tenant Representative (Like Us)

Before communicating with the Landlord about a lease renewal, the Tenant needs to hire their own commercial real estate agent to represent them from the very beginning to give them the strongest posture. Because Tenants are not industry experts tracking the commercial real estate market or professional commercial real estate negotiators, they may accidentally make mistakes if they begin communicating with the Landlord right away. Even the slightest slip-up can cost a company tens to hundreds of thousands of dollars on a lease term.

Tenants should not make the mistake of thinking they can save money by trying to handle real estate transactions themselves! Landlords would like Tenants to think that, but the reality is, Landlords pay the commission fees for both sides (Landlord Rep and Tenant Rep) of the transactions – even for lease renewals. Therefore, when Tenants bring their own advocates in from the very beginning, the Landlord will understand the Tenant is serious and understands the business. After all, this is what big Fortune 500 corporations do to get them the best deals with their real estate transactions.

#3. Create a Customized Strategy

Once the Tenant meets with their tenant representative, is educated on the market conditions, and has viable options, together, they can create a customized strategy to get the best terms and the best situation. By comparing the alternatives, a Tenant will have peace of mind knowing their renewal is a good decision.

Even if their first choice is to renew their lease, Tenants who truly consider other options in the market will get the best deal.

This is because if a Landlord knows their Tenant has no choice but to renew their lease, why would they offer competitive terms for a lease renewal?

As with other commercial real estate transactions, navigating the lease renewal process may sound intimidating to tenants, but that is why we are here to help! As tenant representatives, we advocate for our clients to save them the most time and money with their company’s real estate – for every transaction.

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