REoptimizer® Blog

Should I Renew or Wait?

Posted by Don Catalano on Jul 3, 2014 10:17:00 AM

One of the most important decisions to make in any corporate real estate strategy is when and how to renew a lease. Depending on how your lease is written, you could end up with a great deal of flexibility. On the other hand, even if your lease isn't written in a particularly generous fashion, you still have the option of attempting to renegotiate.

Stay or Go

The first corporate real estate strategy decision to make is whether to stay or to go. If you decide to go, it becomes important to review your lease to see if you can buy out of it more quickly. Even if you can't, if your landlord has a tenant that he can use to fill your space, he might be willing to let you out of your lease to avoid a future vacancy when your lease expires.

If your plan is to stay, it's also important to identify that as far up front as possible. That way, you have the time to potentially try to negotiate multiple times and get the best possible price and terms for your renewal.

Timing

Generally, an early request to renew telegraphs that you want your space. You might worry that showing your hand to your landlord could weaken your negotiating position. That's not really a concern, though. If you can't work out a good deal, you can always come back and negotiate later. This is especially the case if you are in a market where your landlord's position is weakening or if you have options that protect you.

Negotiating early may be desirable to your landlord, too. The benefit for your corporate real estate strategy -- stability -- also accrues to his. When you renew early, he knows that he can count on your rent for a longer period of time. Since you've been in your space for less time, he might also be able to save money by offering you a smaller TI allowance.

Waiting until the last second is a dangerous game. If you don't have an option to protect you, you could lose your space. On the other hand, if you are willing to move and have alternatives lined up, you could also end up in a strong negotiating position if your landlord needs you. Ultimately, it comes down to how much risk tolerance is built into your corporate real estate strategy.

A holdover clause that lets you stay in your space past the expiration of your lease also may make waiting until the last second a safer choice. That way, you know that you won't lose your place to do business. However, holdover clauses can be expensive and can be time-limited, so it is important to understand your rights before you get down to the wire.

 

Option vs. Renegotiation

When you are coming up on a renewal, options can be very helpful. An option usually guarantees your right to renew the space and gives you a pre-set rent level or terms for calculating your rent level. However, just because they bind your landlord to give you a certain offer doesn't mean that they bind you. If it is a better fit for your corporate real estate strategy, you can always choose not to take your option and, instead, negotiate a new lease with new terms with your landlord. The option binds him -- not you. Of course, if you choose to renegotiate from scratch, remember that you can only fall back on your option if it is still valid, so it can be important to pay close attention to its effective dates.

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Topics: corporate real estate tenant, CRE renewals, corporate real estate, commercial real estate, tenant tips, CRE, corporate real estate strategy