Begin the Process at Least 12 to 18 Months Prior to Expiration
Many tenants believe that 6 months is enough time to renegotiate their lease, especially if they intend to remain in their building. However, in terms of lease negotiations, 6 months is much too short of a time to realistically relocate, and therefore, indicates to the landlord that you intend to stay. To retain the greatest flexibility, tenants should begin considering their options at least 12 to 18 months prior to expiration. This allows the tenant to not only explore other options but also to capitalize on any current vacancy dilemmas the landlord may be facing, which may result in lower rents and more flexible options.
Gather Market Data About Your Building and Your Submarket
Information is essential when considering a renewal. What is the vacancy rate in your building and your submarket? How much are other tenants paying in your building and your submarket? What types of incentives (free rent, tenant improvements) are other tenants receiving? If you do not know what tenants next door are paying, how will you know if you are being offered the best deal available? Consult with real estate brokers and other tenants in your building. Rental expense is typically a company’s second-largest expense. Do not leave this to chance.
Create Negotiating Leverage by Convincing Your Landlord You May Move
The process of renewing a lease is the same as relocating. Even if you intend to stay in your space for the next 10 years, make sure to tour the market and request proposals from other buildings to ensure that your landlord knows that you are seriously considering a move and that he or she needs to compete for your tenancy. In creating this negotiating leverage, you may end up finding an opportunity that better suits your business.
Do Not Share Your Intentions with Anyone
No one outside your real estate department or management team should know your intentions regarding your office space occupancy. Landlords have a team of people who are responsible for monitoring your decisions – brokers, asset managers, property managers and even janitorial staff. For example, if your receptionist tells someone from property management in passing that you are not moving, any negotiating leverage you may have had is gone.
Do Not Negotiate Without Representation
Most people would not consider representing themselves in a legal matter without an attorney, yet tenants regularly negotiate on their own behalf with their landlord. This is a mistake. Landlords rely heavily on their brokers to keep their buildings full no matter the cost to the tenant. The landlord’s brokers and property managers are looking out for the best interests of the landlord not the tenant. You should have your own broker to represent your best interests. A tenant broker can be extremely helpful with not only providing vital market information, but also in creating the negotiating leverage necessary to convince the landlord that you’re serious about relocating if you can’t come to reasonable terms on a renewal. A tenant who contacts his or her landlord directly to express a desire to renew a lease is essentially telling the landlord that he does not need to compete for the tenant’s occupancy.