Chris Carmen / June 6, 2016
“Don’t allow yourself to be backed into a corner.” I’ve repeated this phrase to countless business owners and managers when discussing office lease expiration. I’ve spent much of the past 31 years negotiating office leases on behalf of businesses and consistently the most important thing you can do when negotiating the terms of an office lease is to make time your friend. It will always be to your advantage to have time on your side. Having plenty of time to negotiate the economic and business terms of the lease will always work to the tenant’s advantage. On the other hand, having too little time can cause office tenants to feel they’re in a corner, with few options, resulting in being forced to settle for less than ideal lease terms.
If the business owner or manager doesn’t have enough time to adequately assess office alternatives, the landlord can take advantage of the businesses’ lack of time in order to negotiate better terms. The landlord can stand firm on its demands, understanding the tenant does not have a choice but to accept the terms due to lack of time to pursue other options.
Office leases always have lease expiration dates…. a date at which the lease will expire and the tenant will no longer have the right to remain in the office space or be entitled to the benefits of tenancy. Therefore, it’s imperative tenants use their lease expiration date as a point to plan the negotiation of a lease renewal or a new lease located in an entirely different building. For example: from the time a business owner or manager has the initial conversation about an office relocation with their real estate advisor, to actually being settled in a new location may take as much as 9-12 months. Working from a shorter timeline can cause the business to take shortcuts in the search for possible office locations, in vetting the alternative office sites, and shortcuts in negotiating the economic and business terms of the new agreement.
Even if a business is considering a renewal of its existing lease, it should utilize the same timeline it would use to relocate an office in order to negotiate the best possible terms for its lease renewal. Without leveraging the competitive market for office space, tenants are at the mercy of the landlord to set the terms of the lease renewal. Keep in mind, the motives of the landlord are usually completely inverse to those of the tenant: the tenant wants as much flexibility and to pay the least amount of rent as possible. The landlord wants the lease terms to have as little flexibility as possible and the tenant to pay as much rent as possible.
Most businesses think of office leases as something you complete and set aside, without touching until it’s time to renew or relocate offices three, five, or more years later. This mindset is exactly what causes businesses to put themselves into a corner. A business should treat the office lease as an ongoing aspect of the business that should be considered in the annual or semiannual strategic planning process. Doing so will ensure that key dates and opportunities aren’t missed and positioning the business to best negotiate a new lease or an office lease renewal.
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