admin / February 27, 2019
Be prepared when extending your existing lease commitment
Very often I hear the phrase, “How can my lease be up for renewal, it feels like I just moved in!” In what seems like a blink of an eye, 3-5 years goes by and your lease is expiring.
- Do you have option to extend?
- Do you have a First Right of Refusal?
- What is your time line to notify Landlord?
- Is the new rate at market or do you have fixed increases?
- What cosmetic repairs will you be responsible for upon vacating premises?
- Am I comfortable with current market values or am I behind the trend?
To avoid being blind sided with a lease renewal, begin the process early so you can maintain leverage over Landlord. If you run out of time and are not aware of the notification period you place yourself at a disadvantage.
Engaging a competent Industrial real estate agent a year or two before lease expires to conduct a lease audit will help you plan for the possible negotiation process you might be faced with. A lease audit will confirm critical dates, reconcile rental increase amounts, review maintenance responsibilities and present Lessee with a reconciled summary confirming nets charges, CAM charges, maintenance contract compliance (ie., HVAC maintenance, Roof maintenance, lighting, landscape and yard repairs, if any).
Your industrial real estate professional should present you with buildings options, market data, and values for comparable properties, market trend report, absorption trend and specific range of value for subject premises. The Landlord should sense you have a good pulse on market allowing you to negotiate from a position of knowledge.
With leverage (ample time), you are in a much better position to negotiate not only better rate, secure TI allowance, defer building repairs or modifications to Landlord, possibly negotiate more competitive rental increases and even some free rent. Especially if you have been a good paying tenant and have taken reasonably good care of the property.
Never agree to use Landlord representative to protect your interests. Have a qualified agent representing your interests and position in any negotiation. Dual agency is a sensitive subject which raises questions of fair representation. Dual agency can be done, however, the best way is to have your own agent and Landlord have its own agent. This is a clear and defined approach that eliminates any possible conflict of interest perception.
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