“Strategies for Renewing Your Lease”, By Bart Connolly

Undeniably, the COVID-19 pandemic has drastically disrupted the commercial real estate landscape and our economy in general. The health and well-being of our families is obviously of paramount concern; equally, questions do exist on how to best position your business as our economy looks to recover from the COVID-19 pandemic. What follows are some tried-and-true tips for renewing your lease:

1. Hire an Experienced Real Estate Broker. A common myth in the renewal of a commercial lease is that a landlord will provide you a better deal if you are not represented by a real estate broker (“Tenant Broker”). Although this may be true in limited circumstances, and largely depends on the size of the landlord, your relationship with your landlord, etc …the reality is most landlords hire a real estate broker to represent the landlord’s interest because it saves them time and money.

An experienced Tenant Broker can save you time and money too, serving as your agent and being bound by certain duties such as the duty of loyalty. Often times, a Tenant Broker’s services should be at no-cost to you, as most landlords will pay any leasing commissions earned by the Tenant Broker. Like any contractual relationship, it is important to do your research before hiring a Tenant Broker. By clicking this link, you can access the Colorado Department of Regulatory Agency’s real estate records for brokers, finding things that include but are not limited to the status of a company’s license, the status of an individual’s license, and whether any disciplinary action has been taken against the licensee.

2. Evaluate Your Market Options. Even if you want to renew your lease, your Tenant Broker’s evaluation of market options can save you time and money. For example, landlords know there are costs in moving your business whether in out-of-pocket moving expenses, out-of-pocket tenant improvements, and/or the loss of clientele. As such, landlords may look to use this information as leverage in the negotiation process seeking a longer lease term, higher rent, and/or a lower tenant improvement allowance.

It is important for you to remember that there are significant costs to a landlord in losing a good tenant too. For example, by losing a good tenant a landlord must: (a) find another good tenant, which may take months and will likely result in a loss of income that the landlord can never recover; (b) offer a higher tenant improvement allowance as a new tenant will often require certain changes to accommodate their use; and (c) pay a higher leasing commission with leasing commissions for new leases generally higher than leasing commissions for lease renewals.

3. Start the Renewal Process Early. It may sound extreme but it is recommended that you start the lease renewal process 18-months before your current lease expires. By doing so, you are in a position to hire an experienced Tenant Broker and properly evaluate your market options while avoiding a potential “hold-over” rent scenario and/or unnecessary stress in building out a new space should you find a better opportunity. Additionally, and particularly in today’s economic environment, you may be able to secure immediate cost savings by starting the lease renewal process early. Like they say, “[t]he early bird gets the worm.”

Please contact Impact Commercial Real Estate, LLC for your free consultation as we would appreciate the opportunity to serve your business and deliver value in your lease renewal process.

Bart J. Connolly, Executive Vice President

Impact Commercial Real Estate, LLC