Should I Stay or Should I Go? | Hunt KL Office

July 11, 2018 No Comments

Should I Stay or Should I Go?


Posted by Ten Fong in Negotiating

 

The Art of the Lease Renewal

Every office tenant at some point is faced with a decision of whether to renew their lease or relocate to a new building. Depending on market conditions, in most scenarios the Landlord is inherently dealing from a position of strength. Building owners are well aware of the time, cost and effort required to relocate your business. If you’re waiting until the last minute to make the critical decision about renewing, and on what terms, you’re clearly giving the Landlord a competitive advantage.

 

Here are four posts detailing the concepts for leveling the playing field and an effective lease renewal.

 

Renewing your Office Lease

Building owners recognize corporate office tenants need a compelling reason to relocate their office facilities and opt to renew their lease approximately 70% of the time. Lease renewals are not as simple as they may appear and formulating an effective renewal strategy is a key component of the overall leasing process.

 

Negotiating the Renewal Option

Most commercial office leases are long-term in nature, typically 5, 7 or 10 years in length, but also typically contain provisions for extending the lease beyond the initial term. A renewal clause in a real estate lease allows a tenant to decide whether or not to extend the lease once the initial lease term expires. The key concept to remember is that the renewal option is a benefit to the Tenant.

 

5 Reasons Your Landlord Doesn’t Think You Are Serious About Moving

The reality is in most scenarios, Landlords feel they have a competitive advantage in renewing an existing tenant versus the Landlord that is trying to entice a tenant to relocate. This perception is to some degree accurate as tenants typically need some compelling reason to move.

Why the landlord does not think you will move

  1.  They know on average tenant’s renew their office lease about 70% of the time.
  2.  Your lease is about to expire and you just now started discussing renewal.
  3.  They recognize the time, expense and effort involved with relocating.
  4.  You are not in the marketplace conducting a credible market search.
  5.  You have not hired a tenant representation professional to assist you in evaluating your options and represent you interest in lease negotiations.

Ten Negotiation Tips for Tenants when Renewing Your Office Lease

  1. Hire a tenant representation broker. Their mere presence in the negotiation will enhance your position. An effective tenant representation specialist does this everyday and knows how to strategically position the negotiations on your behalf.
  2. No matter what the market conditions are it is absolutely critical you evaluate options in the marketplace and introduce competition for your tenancy into the negotiation, even if you have no intention to relocate.
  3. Start Early: you must allow enough time to evaluate the market, negotiate the transaction and relocate should you not strike an acceptable deal. In addition the landlord must perceive you have time to relocate and build out an alternative space prior to your lease expiration.
  4. Always have the landlord make the first proposal and  reveal his position first.
  5. Never accept the first proposal. Ask for more then you can get and as a rule of thumb, your first counter should be at least an equal distance on the other side of the objection as the Landlord’s initial proposal.
  6. Remain un-emotional.
  7. Don’t put any economic value or goodwill in your previous tenure in the building. Just because you have been there for 15 years does not mean you will get better deal.
  8. Only keep key executive personnel “in the know” as to the status of the negotiation.
  9. Don’t talk directly to the building leasing agent or landlord and limit or harm your tenant rep’s negotiation strategy.
  10. You should utilize a real estate lawyer to review the lease document or lease amendment but do not rely on your lawyer to negotiate business terms or your broker to negotiate legal clauses. The best case scenario is for the broker and attorney to work together. 

When your office lease comes up for renewal the Landlord can have an inherent advantage if you do not go about the process properly. Here are 10 tips that will increase the probability of a better renewal Transaction.

 

For more questions, you can refer to www.huntkloffice.com


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