By: Dale Willerton and Jeff Grandfield from The Lease Coach
Whether you are about to open a new box or you are facing a lease renewal negotiation, take a few tips from an expert: The Lease Coach.
Do create competition for the tenancy. The Lease Coach advocates for negotiating on multiple locations simultaneously, especially with lease renewals, even if a gym owner doesn’t want to move. The Lease Coach creates options and plays one landlord against another to create leverage.
Do start the planning and site selection process well in-advance. For existing businesses and lease renewals, The Lease Coach recommends beginning 12 months in-advance. This allows for ample time for negotiating, completing paperwork, searching for alternate sites (if necessary) and accounting for Murphy’s Law.
Do keep success quiet. Landlords often try to raise the rent due to the gym’s success. If doing well in a particular location, a tenant will likely not want to move even if he/she can afford the rental increase. Some agents and landlords may try to take advantage of tenants knowing how expensive it can be to move.
Do talk to other tenants. When re-negotiating a commercial lease renewal for a tenant, The Lease Coach often begins by talking with other tenants in the building who have recently renewed leases. Asking pointed questions (including how these negotiations went and what the landlord was willing to agree to in terms of rent and incentives) tenants are often surprised at what The Lease Coach can learn!
Do negotiate for lease renewal incentives. For some reason, tenants neglect or fear negotiating for lease renewal incentives. If a lease is expiring, a tenant should ask him/herself what inducements (like free rent/tenant allowances) would the landlord give to a new tenant coming into the property.
Do understand the role of the Broker: Friend or Foe? Real estate agents and brokers typically work for the landlord who is paying their commission. The Lease Coach knows that it is not normally the role of the agent to get the tenant the best deal, it is their job to get the landlord the highest rent, the biggest deposit, etc. The higher the rent, the more commission the agent earns. The Lease Coach works solely for the tenant and never collects any commissions from a landlord. We deal directly with the listing agent for each property and resist letting just one agent show you around. A tenancy is more desirable to the listing agent if he can avoid commission-splitting with other agents.
Don’t have false optimism. If a business isn’t faring well, but the tenant wants to renew a lease, this is false optimism. Unless the tenant changes location or something else, it’s not realistic to expect the next five years to be better than the first five. Moving can be difficult, frightening, time-intensive and expensive, but sometimes absolutely necessary.
Don’t accept an inappropriate lease length. For new boxes, an initial lease term of three to five years is typical. When renewing, a gym tenant should not automatically sign for that same or similar time frame without considering the future. A gym may be sold or an owner may want to move on. Don’t get locked into a long-term lease renewal unnecessarily.
Don’t settle for the same rental payment. The Lease Coach often re-negotiates a lease renewal and achieves a rent reduction for a tenant. If the landlord is leasing space to new tenants at less than what the gym is currently paying, a rent reduction should be achievable. If the tenant’s current rental rate is artificially high because of his/her last tenant allowance, a rent reduction on the renewal term could also be in order. Again, tenants should talk with other tenants who have recently renewed or moved in to see how much they are paying.
Don’t allow the landlord to retain the deposit. If the tenant has paid the landlord a deposit, The Lease Coach negotiates to get this back upon the lease renewal date. Business owners can prove themselves as responsible tenants over their initial term. Why should the landlord keep this money?
Don’t disregard operating costs. Having the lease and operating costs analyzed are effective ways to keep the landlord and property manager accountable. Frequently, tenants pay inflated Common Area Maintenance (CAM) because of padded or miscalculated operating costs. Often, it can be advantageous for groups of tenants sharing the same property to unify for an operating cost analysis.
Don’t always exercise options. Even though the tenant has a renewal option, he/she may not want to exercise it, especially if the rental rate automatically increases or can’t decrease. If a tenant is certain that the landlord wants them to stay and the “going rate” in the neighborhood has softened, The Lease Coach will negotiate the renewal from scratch rather than trigger the option.
For a copy of a free CD, Leasing Dos & Don’ts for Commercial Tenants, e-mail DaleWillerton@TheLeaseCoach.