Commercial Lease Renewals: Negotiating Terms in a Changing Market
As you approach the end of your lease period, it’s time to decide what you want to do next. If you like your current location but find the lease terms to be less than favorable, you may be interested in negotiating terms that are more to your benefit. It’s important to be prepared, though—jumping into a conversation about a lease renewal without any planning can lead to disaster. Keep these tips in mind as you decide how you want to proceed with your Maryland commercial lease.
Understanding Market Dynamics
It is crucial that you understand the current commercial real estate market before deciding what you want to ask for and whether or not you want to move. If the real estate market in your area is hot, trying to negotiate terms could be a bad decision; the landlord may decide not to resign your lease and simply put the property back on the open market for a new tenant. But if the market is sluggish or the location is niche enough to appeal to a small market, you may have some leverage.
To understand what is at play here, look into commercial real estate rentals in your area. You’ll want to see how many are available, how quickly listings are taken off the market, and how rental costs have changed over recent years. You may also want to look into inflation rates and how they may have impacted the market.
Don’t forget to get a bigger picture of the area in which your rental is located. Is it undergoing in major revitalization that would ramp up the value of your property or increase foot traffic? If so, risking the loss of the rental entirely may not be worth what you might gain in negotiations. On the flip side, if the area has lost multiple key tenants since you signed, the appeal of the area may have decreased and given you some leverage.
Planning Ahead for Successful Negotiations
Before you even sit down to have a conversation with your Annapolis landlord, you must have a solid plan in place. First, know exactly what you want. What’s your ideal lease term? Do you need a shorter lease term to give you flexibility as you grow, or do you need more stability from a longer lease term? You may also want to look at changes in rental rates in comparable properties and decide what type of increase you are comfortable absorbing. You may be able to negotiate a standard rate increase schedule with the landlord.
Consider the needs of your business beyond what your rent costs and how long your lease is. If the property is stable but hasn’t been updated in decades, you may ask for certain upgrades in exchange for signing a new lease. If your space shares a common area with other businesses, consider asking for common area upgrades that would bring in more customers and improve the curb appeal of your business.
You’ll want to begin negotiations well in advance of the end of your lease. If negotiations fail and you decide not to resign, you need enough time to give proper notice and find a new location for your business. Last-minute negotiations put enormous pressure on both parties.
Knowing What You Bring to the Table
As you decide what you want and what you are willing to compromise on, think about what kind of tenant you have been since your last lease renewal. If you pay on time or early every single month, rarely complain to the landlord, and are committed to keeping your space tidy and aesthetically pleasing, you’re likely a dream tenant. That gives you a lot more leverage than a tenant who regularly pays late, constantly asks for unneeded upgrades or frivolous repairs, and has let the property fall into disrepair.
Ensuring the Legality of Your Lease
No matter what terms you ultimately decide on for your commercial lease, you should meet with an Annapolis real estate attorney to look it over. If your lease contains any terms that aren’t legally enforceable, you risk the entire lease being null and void. Double-checking the validity of the lease can save you a significant amount of time, money, and stress down the road.
