By Jeff Grandfield and Dale Willerton
Readers of our new book, Negotiating Commercial Leases & Renewals FOR DUMMIES, will learn (in-part) that they should be as equally cautious with their commercial lease renewals as they were with their new leases! Healthcare tenants (and established doctors) can be very attractive to commercial landlords and those doctors can use this fact to their advantage with their lease renewals. Without effective negotiation, physician tenants can miss out on valuable tenant inducements (paid by the landlord) and even lower rents.
As The Lease Coach, we frequently remind physicians of the following steps:
Do start the planning and site selection process well in-advance. Lease renewal negotiations should begin between nine – 12 months before the lease term expires. This will give you sufficient time to look at other sites and do your homework. If you can’t get a decent renewal rate, would you rather find out you need to move with three weeks or six months left on your lease term?
Don’t settle for your same rental rate. Achieving a rent reduction on your lease renewal is a very real possibility. If your landlord is leasing space to new tenants at less than what you are currently paying, a rent reduction for you should be a given. If your current rental rate is artificially high because of your last tenant allowance, a rent reduction on your renewal term could also be in order.
Do negotiate for lease renewal incentives. If your lease is expiring, ask yourself what inducements would the landlord give to a new doctor just coming into the property. Examples of such inducements would include free rent and tenant allowances. If these were being offered to a new physician, then why wouldn’t an established physician tenant – with a proven track record – get the same (or more) consideration?
Don’t have false optimism. Unless you change location or something else about the way you practice, you should not realistically expect your next five years to be better than your first five years. While you may not want to consider moving after you have been in one location for a long time, this may be necessary.
Do create competition for your tenancy. View other properties and even negotiate on more than one location simultaneously – especially with lease renewals. Even if you don’t want to move, create options so you can play one landlord against another. Share with each landlord that you are receiving proposals on other sites. Remember, you are the customer – make the landlord earn your tenancy.
Don’t let a landlord-paid agent represent you. It is not uncommon for a physician tenant to believe that the real estate agent (or broker) is working for them. However, it should be noted that the agent’s commission is being paid by the landlord and even an outside agent may be sharing in that commission. Remember, the higher the rent paid, often the higher the agent’s commission. Brokers and agents do a great job, but who they doing that job for and who is paying them to do it?
Do negotiate for lease renewal allowances. Doctors often don’t think they can negotiate for a tenant allowance on their renewal term. Untrue! Approximately 75% of our clients get a tenant allowance on their renewals. Remember, if the landlord is giving allowances to new tenants moving in, then why can’t you get an allowance too? Even if your space only needs cosmetic upgrades, negotiate this as part of a renewal deal. After all, your tenancy is proven, plus there is less risk for the landlord putting cash into your renewal than taking a chance on a new tenant.
Don’t allow the landlord to retain your deposit. If your lease agreement requires you to make a deposit for the initial lease term, it is not acceptable for that deposit to continue indefinitely. Ask yourself, are you a security risk? Have your rental payments been on time? If so, resist further security deposits and make sure that you state this amendment in the renewal document. Otherwise, your deposit, which was to be applied to the last month, needs to be replaced for the renewal term. The Lease Coach is frequently successful in negotiating to get the physician tenant’s deposit returned with a lease renewal.
For a copy of our free CD, Leasing Do’s & Don’ts for Commercial Tenants, please e-mail your request to [email protected]..
Dale Willerton and Jeff Grandfield – The Lease Coach are Commercial Lease Consultants who work exclusively for tenants. Dale and Jeff are professional speakers and co-authors of Negotiating Commercial Leases & Renewals FOR DUMMIES (Wiley, 2013). Got a leasing question? Need help with your new lease or renewal? Call 1-800-738-9202, e-mail [email protected] or visit www.TheLeaseCoach.com.