Dec 20, 2017

6 Tips on Negotiating a Favorable Option to Renew

By Don Catalano

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6 Tips on Negotiating a Favorable Option to Renew.jpg
When you're lucky enough to find office space that perfectly suits your business needs, you naturally want to renew your lease and avoid the hassles and costs of relocating. Fighting for a favorable option to renew can help to ensure that you will be able to continue to occupy your space. Following these tips will give you the best chances of walking away from the negotiating table with a favorable renewal option:

 

1.  Offer a Long Term

Your landlord is much more likely to be willing to negotiate a favorable option if you are willing to make your lease for a long term. Landlords wish to keep their units filled for as long as possible in order to avoid having to start over fresh with new tenants. If you are concerned about changing market conditions or what might be in store for your company in the future, you can protect yourself with the right clauses in your lease. A right of early termination can allow you to exit the lease by paying a fee, while the right to renegotiate gives you a chance to revisit the market at a set point in time during the life of your lease.

 

2.  Know What to Ask For

Not all renewal options are equally favorable. To ensure that your rights are protected, make sure that the language in the contract specifies:

 

- When you need to give notice of your intention to renew

- What the new term will be for the renewal

- How the rental rate will be calculated at the time of renewal

 

3.  Be Wary of Set Rents 

Sometimes, the landlord will insert language that states what the rent will be when you exercise the option to renew. If the market remains level or increases dramatically, this could be favorable to you; however, if the market takes a downward turn, you may end up paying unfairly when the lease renews. To protect yourself, have the landlord spell out what your rental rate for the renewal term will be based on a well-defined, fair market value.

 

4.  Fight for Improvements 

During your initial rental period, you may discover that some elements of your space are less than ideal for your business needs, and the building will naturally age. Having a tenant improvement allowance added to your renewal option clause can allow you to make updates and other changes when you renew your lease, so that you can improve your space and keep it in good repair.

 

5.  Enlist the Help of an Expert

Having a tenant representative broker by your side at the negotiation table can be invaluable when you're negotiating for a favorable renewal option. Tenant rep brokers know the market inside and out and will be able to advise you and fight for your rights. Tenant reps' fees are paid by the landlord, so their expert help and advice will cost you nothing.

 

6.  Mention the Renewal Option Initially

Negotiating the renewal option can be a lengthy process. As soon as you begin to negotiate your lease agreement, outline what you're looking for from your renewal option, so that you can be certain you will have enough time to reach a fair agreement before your moving deadline.

 

Here are some other articles to check out:

Commercial Office Leasing 101

Commercial Lease Renewal Myths... Busted!

5 Tips for Negotiating a Great Commercial Lease

 

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Topics: commercial real estate

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Don Catalano

Don Catalano

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