Beyond the Lease: Renegotiating Your Way to Success

Published: 06-26-24    Category: Leasing/Renting

Specializes in providing actionable insights into the commercial real estate space for investors, brokers, lessors, and lessees. He covers quarterly market data reports, investment strategies, how-to guides, and top-down perspectives on market movements.

A landlord & tenant renegotiate a lease.

As a tenant of a commercial building, you've already negotiated a lease and moved your business in.

But what might happen if your business takes a new direction? For example, what if one of your products is promoted by an Instagram influencer, and you're not able to keep up with demand?

You may need to expand your space quickly before your current lease ends. In this case, you may want to attempt lease renegotiation. Renegotiating your lease may also benefit other changes in your business scenery.

Understanding how lease renegotiation works and how to pull it off correctly will yield dividends down the road. That's why, in this article, we'll examine how to renegotiate your lease and discuss strategies for approaching your landlord.

Why Consider Lease Renegotiation?

Several situations—some good, some not so good—might prompt you to realize that your original lease doesn't fit your needs as well as it did initially.

Here are some examples.

  • Business expansion: Your company's doing great! You need more space. Or perhaps you've realized that you could operate more efficiently if you moved to a space with a different layout.
  • CRE market shifts: Economic changes may have affected commercial rental rates in your area, causing them to drift lower.
  • Property issues: These could be chronic maintenance problems, such as leaky ceilings, electrical faults, or changes in the area surrounding the building that are adversely impacting your business.
  • Unfulfilled terms: If you were promised a certain number of parking spaces in your lease, but only half are reserved for you and your customers, this is a valid reason to renegotiate.
  • Financial problems: Your business is facing some challenges, and you need to reduce expenses.

If and when you decide to approach your landlord, here are some things to consider.

Preparing Your Approach

If possible, start this process well before your current lease expires. This will give you time to consider alternatives should negotiations fail.

Before approaching your landlord, review your current lease terms. Consider any clauses that could affect or stop your renegotiations.

Determine what you can offer in exchange for improved terms. These could be a longer lease commitment or taking on specific maintenance tasks for the landlord.

Consider your value as seen by a landlord. Consider your payment history, length of lease, improvements you've financed, and anything else you've done to make the landlord's life easier.

As you did for your initial lease, investigate the current rental rates for similar properties in your area. Compiling commercial comps may strengthen your position.

The more thorough you are in your preparations for talking with your landlord, the better your chances of success.

How to Approach Your Landlord

Consider these strategies when you're ready to initiate renegotiation talks and practice your introduction. Remember, most landlords don't receive this type of request, so you'll need to be calm and well-prepared.

Initiate this talk during your landlord's slow leasing season, when they may be more receptive to flexible lease requests.

  • Be Prepared: Approach your landlord with a well-thought-out proposal. Present your case clearly, and be prepared to produce your data immediately afterward.
  • Describe Mutual Benefits: If possible, frame the renegotiation as an opportunity that benefits both parties. If you need to let more space, this means increased rent for the landlord.
  • Bring Several Options: Be as flexible as possible. If your ideal solution won't work, have alternates ready.

If and when your landlord is receptive to discussing your business needs, be ready to move forward with one or more of the following.

Areas for Negotiation

These are reasonably simple for a landlord to consider and may also improve the building's overall outlook.

Consider negotiating a rent reduction, a slower escalation rate, or a temporary abatement.

Offering to lengthen your initial lease term could encourage your landlord to be open to other concessions.

Discuss options for expanding or upgrading your space. Suggest trade-offs such as slightly higher rent in exchange for assistance with reconfiguring your current space.

Take on certain maintenance duties in exchange for a rent reduction. This could be particularly advantageous if you can repair any long-standing problems that keep returning, such as water leaks.

Asking for permission to sublet some of your space could help you increase your income without affecting the landlord's cash flow.

Negotiate the ability to end the lease early under specific conditions if this will enable you to continue to operate and keep up with rent payments.

Be sure to adopt the right approach from move-in to help create a positive working relationship with your landlord—one where renegotiations stand the best chance of success.

Here are some tips.

Be Your Landlord's Favorite Tenant

To make the most of your commercial lease, adopt a proactive approach by putting as many of these into motion as possible.

Schedule annual reviews of your lease terms so you can openly discuss how they align with your business needs.

Maintain an ongoing, friendly dialogue with your landlord. Don't limit your conversations to reporting problems. A good relationship can make future negotiations easier.

Keep detailed records of all communications, property issues, and how your space meets (or does not meet) your needs.

What Happens Next?

No matter how well-prepared you are, lease renegotiations don't always result in changed terms. Your landlord may not be willing or able to proceed.

In this case, you should be prepared to:

  • Accept the current terms and plan accordingly;
  • Begin looking for new lease spaces that are a better fit with your needs;
  • Consider subleasing options if allowed by your current lease; or
  • Explore creative solutions, such as sharing space with another business.

Lease renegotiation can be a powerful tool for managing unexpected changes and controlling your expenses.

Advance preparation and careful demands increase your chances of improving your current lease terms.

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