The 3 R's of CRE - Part 2: Renegotiate

What You’ll Learn from the Article:

Understanding the market before renegotiating your lease.
Strategies for renegotiating, including early termination, buyouts, and rent reductions.
How renegotiation can help reduce costs on expensive or unused leases.
Why landlords may agree to renegotiate to avoid vacancies.

While the adage that "you don't get what you deserve, you get what you negotiate" is true, it only tells half the story. When it comes to getting what you truly deserve for your company's office space, negotiating once isn't enough. Frequently, you can go back to your landlord -- even if you have a valid executed lease -- and renegotiate your lease to serve your company's needs better.

Know What You Should Pay

Before starting to renegotiate your lease, the first step is to have a comprehensive understanding of the market for spaces like yours serving tenants like you. While your lease might have been perfectly priced at the time you signed it, it's likely that over the years, the market has shifted and your current lease rate is out of sync with what new tenants are paying for comparable spaces. Of course, if your lease is significantly below market, you might not want to make changes in it, but it's also possible that you're paying more than you should.

Research The Market

If you don't have your own in-house department of market researchers and commercial real estate brokers, it's very challenging to nail down the right rent for your current spaces. iOptimize Realty® has experts that can survey your market and help you figure out what you should be paying -- regardless of what you are actually paying.

Get Out of Expensive Leases

For many tenants, the goal of a renegotiation process is to get out of an expensive lease. Leases can be expensive because they are at rates that are too-high for the current market. they can also be expensive for you if they are for spaces that don't meet your needs -- meaning that you're paying for something that you can't use fully, if at all.

Regardless of why you are doing it, renegotiating your lease can take a few different forms:

Your landlord could allow you to simply terminate your lease early with no penalty or additional payment. Usually, for this to happen, your landlord will need to have another tenant already looking to occupy your space,
You could buy out your lease by making a lump sum payment to your landlord -- which will to be negotiated -- to be released with no further responsibility for the space or the lease.
Rent abatements or reductions might be possible if you agree to a longer term. Alternately, your landlord might allow you to change the size of your space in exchange for you offering a different rent rate or term or other concession.
If you can't renegotiate anything, you might choose to put some or all of your unused or underutilized space up for sublease so that you can find someone else to take over the cost of your lease.

Why Landlords (Might) Renegotiate

At this point, you might be asking why a landlord would let you renegotiate your space. After all, if you have a lease, it's probably a binding document that has you on the proverbial hook for its entire term. This is entirely true. However, the business world doesn't always neatly correspond with legal reality.

renegotiate

Your landlord wants to earn as much profit as possible from his or her building. While collecting your rent is a good way to do this, keeping you as a tenant for as long as possible is another profit maximizing strategy. Vacancy costs money, leasing commissions cost money and concessions for new tenants are expensive, as well. If renegotiating can keep you in 10,000 square feet for the next ten years instead of keeping you in 15,000 square feet for the next two years, then a smart landlord will realize this. This principle applies to rent rates as well -- if rents have dropped in your market, then your landlord should know that you'll leave at your lease expiration and that the new tenant will pay the new lower rents. It's in their interest to split the difference with you and retain your tenancy for the long term.

Get Better Terms Now!

Executing on a renegotiation strategy isn't just about emailing or calling your landlord, though. It is a complicated and highly strategic process requiring deep market knowledge, keen negotiating skills, and the capabilities that a commercial real estate broker brings to the table. In other words, the process starts by reaching out to us today to learn how we can help!