Mar 11, 2020

Commercial Lease Coming Due? The Best Time for Due Diligence

By Don Catalano


Commercial Lease Coming Due? The Best Time for Due Diligence
If you have a lease coming due, it might already be too late to have the perfect amount of time to decide what to do. Believe it or not, the due diligence process for renewing a lease or finding a new space can easily take 18 months. That might seem like a lot of time, but it's not as long as you think.

Due Diligence On Your Space

The first step in the process is to step back, analyze your space and answer this question: Do you want to be there at the end of your next lease term? Ask yourself if your space's location and general size is a good fit for your needs today and what your needs will be in the future. If it is, determine if the space will need significant reconfiguration.


Once you figure out that your office or other location can work for you, the next decision to make is whether you are open to moving. After all, just because your due diligence shows that a space is worth holding on to doesn't mean that it's one that you have to retain.  If you need to stay, then you have to build a strategy to hold on to the space. If you don't, you have more latitude in your negotiations.


Typically, you'll want to make this decision 15-18 months before your lease ends. While you're doing this, pay careful attention to the deadlines in your lease. If you plan on exercising an option to renew, you could have to notify your landlord three to nine months before the lease's expiration.


Surveying the Commercial Lease Market

Once you make some basic decisions about your needs and how your current space fits into it, it's time to do some due diligence on the market. Note that you should do this even if you aren't going to move.  Being an expert on the market will help you find new spaces. It will also help you negotiate with landlords -- either new or existing.


The depth of your market study depends on your intention. If you're looking for something new, you can cast a wide net, but if you plan to stay, spend your time understanding similar nearby spaces.


Touring and Collecting Offers

About nine to 12 months before your lease expires, it's time to start getting serious about looking at new spaces -- even if you don't plan on moving.  Looking this early gives you time to find a space, negotiate the new lease and get that space configured for you.


At the same time, if you have any desire to stay in your space, it's also time to open negotiations with your landlord. The research that you've done in the market will help to guide whether you take your option as is or renegotiate, and the tenant improvement and concession offers that you get from other landlords can give you a sense of what you might be able to request from your current landlord. Remember that your renewal option -- if you have one -- isn't the way that you have to renew. It's just a way that you can essentially force the landlord to renew you. If he or she wants to keep you and the market requires him or her to compete, your landlord should do what it takes to retain you.


Ultimately, this entire process is about gaining knowledge and maintaining a strong negotiating position. Doing that requires time, and staying strong in that negotiation is also a great deal easier to do if you know that you don't have to rush to find new space for your business. Getting an early start can be as important as working with a skilled tenant representative when it comes to maximizing your benefits when your next lease renewal arises.


Here are a few other articles you might enjoy:

5 Ways to Make a Greener Office Space

8 Terms to Look for in Your Next Lease

Corporate Tenants & Repairs: Who's Responsible?


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Topics: due diligence

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Don Catalano

Don Catalano