Renegotiating Your Commercial Lease

Posted on Posted in Commercial Property, Commercial Real Estate, Leasing, Women in Business

Is your lease coming up for expiry on your commercial property and you’re dreading negotiating a new lease with the Landlord?

Like any negotiation, it pays to be prepared before you commence discussions. Knowing your lease and understanding your rights will make it a lot less stressful for you – and should save you money in the long run.

Here are four things to check before you start negotiations:

  1. Do you have any lease options? 

    If yes, what is the length of the option lease and is this suitable for your requirements? Lease options are for the benefit of the Tenant so if you can exercise an option instead of renegotiating a whole new lease it could be a lot more beneficial. Ensure you take note of the date by which you must exercise the option and the method of review.

  1. Do you know what market rent is? 

    I can’t stress to you how important it is to know what market rent is for your property. You can’t always assume that the rent the Landlord is asking for is fair or market. Do your research and find out what similar properties have leased for and if they were offered any incentives. If you are a Tenant under the Retail Leases Act in Victoria, your rent can actually reduce at a market rent review so it is crucial that you have this information at hand before you negotiate.

  2. Has anything changed in your business that you might be better off relocating? 

    Always consider other options such as relocating to a smaller space to fit your budget or possibly returning part of the premises to the Landlord (if the set up allows for this).

  1. Do you have a back up plan in case things don’t work out how you want them to? 

    If negotiations are prolonged and your lease expires, it puts you in a vulnerable position whereby your Landlord may give you notice to vacate the property (usually only one months notice). Commence negotiations on your lease renewal as early as you can and consider what you will do if the negotiations don’t work out as you had hoped. This can include alternative properties that you could lease or maybe other terms that you could agree to in order to secure the lease, for example a five-year lease instead of three.

You should start to think about your lease renewal at least 12 months in advance, thus enabling you to have plenty of knowledge and research at hand when the time comes to negotiate.