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What should you consider when renewing a commercial lease?

On Behalf of | Oct 16, 2024 | BUSINESS & COMMERCIAL LAW - Business & Commercial Law

Renewing a commercial lease can have a big impact on a business’s long-term success. Properly negotiating the terms helps ensure the new lease benefits both the landlord and the tenant. Here are some important factors to keep in mind.

Understand market conditions

Before negotiating, research the current commercial real estate market. Knowing whether the market favors landlords or tenants can impact how much leverage a business has. Understanding current rental rates, vacancy levels, and comparable properties can help during negotiations.

Assess business needs

A lease renewal provides an opportunity to reevaluate the business’s space requirements. Consider whether the current location still suits the company’s operations and growth plans. Factors like space size, layout, and neighborhood changes may affect whether renewing is the right decision.

Review lease terms

Carefully review the existing lease terms. Identify provisions that may need updating, such as rent escalation clauses, maintenance responsibilities, or renewal options. Consider negotiating for more favorable terms, like rent concessions or modifications to the renewal period.

Negotiate rent adjustments

One of the most crucial aspects of a lease renewal is negotiating rent. Use market research to determine if the current rent is above or below market value. Try to negotiate a fair rate, especially if the property has issues or if the market favors tenants. Consider rent incentives, such as free months of rent or reduced increases.

Consider flexibility options

Negotiating for flexibility in the lease can benefit the business. Options like early termination clauses or subletting rights provide an exit strategy if circumstances change. These provisions can reduce financial risk and allow more adaptability for future changes.

Plan negotiations early

Start the renewal process well before the lease expires. Early negotiations provide more time to discuss options and reach an agreement. This approach also gives the tenant the chance to explore other properties as leverage, potentially leading to more favorable terms.

Approaching a lease renewal with a proactive mindset and an openness to new opportunities can lead to a more beneficial outcome. Taking the time to understand business needs, market conditions, and negotiation options can help secure possible lease terms.