Negotiating Commercial Leases & Renewals For Dummies

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jeff and dale back to backBy Dale Willerton and Jeff Grandfield – The Lease Coach

Each year in North America, approximately two million business owners, entrepreneurs, retailers, franchisees, and healthcare professionals negotiate a lease renewal for their location. Perhaps that’s why negotiating lease renewals for tenants has become The Lease Coach’s specialty. Many healthcare tenants make costly mistakes on their first lease agreement, and if they’re not careful, may continue to pay the price for those mistakes in their lease-renewal term. 

Each year, we speak with hundreds of tenants who attend The Lease Coach seminars or contact us directly for lease-renewal assistance. Considering that the average healthcare tenant only negotiates a couple of leases in their lifetime, it’s easy to understand how leasing myths can persist. Occasionally these myths are created and propagated by the landlord, but also by real estate professionals looking to serve their own interests. The following myths are the most common.

Myth #1: You must exercise your renewal option to extend your lease. With ninety-eight percent of the successful lease-renewal deals that The Lease Coach completes for healthcare tenants, we do not exercise the renewal-option clause. If they exercised the renewal-option clause, everything except the rental rate would have been off the table for negotiation and the rental rate can’t go down or is pre-set for the future. Your renewal option, if you have one, must be viewed as a safety net or backup plan. All your negotiations on a renewal term should be done well in advance of your current lease term expiring. If the landlord is unwilling to negotiate with you or you’re unable to achieve the terms you are looking for, that’s when you consider exercising your renewal option. 

Myth #2: Rental rates can only go up. We hear this all the time from healthcare tenants, “The landlord wants a rent increase on my lease-renewal term.” Of course the landlord wants a rent increase, but that doesn’t necessarily mean they are going to get it. In fact, approximately 80 percent of the lease-renewal deals that The Lease Coach negotiates result in a rent reduction and big savings for the tenant. One important factor to consider is the Consumer Price Index (CPI), or inflation. The inflation rate for various cities varies, and sometimes the economy is in a period of recession. It’s unfortunate that so many healthcare tenants who negotiate their own lease renewal and avoid a rent increase think they’ve won the battle, when a rent decrease was achievable if they knew had the help of a professional Lease Consultant. 

Myth #3: Landlords won’t provide inducements on renewals. Typically, inducements, or leasing incentives, include free rent, tenant allowance, and landlord’s work to the premises. The Lease Coach negotiates these common inducements for healthcare tenants on their initial lease agreements. These same tenants are shocked, in most cases, to learn that these inducements are also potentially available on lease-renewal terms. Although it’s true that most landlords tend to take their existing healthcare tenants for granted, it can be argued that any inducements the landlord is willing to pay to acquire a new tenant can also be offered and available to existing tenants on their lease renewal. The existing healthcare tenant is the proven customer of the landlord. While a landlord can take a risk on a new tenant, why wouldn’t they provide incentives to keep their existing tenants (who already have a proven rent-paying track record)? Of course, you have to know how to ask for incentives to get them; the landlord won’t offer them out of goodwill.

Myth #4: Next year will be better than last year. We don’t know why, but many healthcare tenants tend to believe this as fact. It’s a myth that just because The Lease Coach gets you a rent reduction on your lease-renewal term, business will get better. In many cases, your problem isn’t that your rent is too high, but your patient load is too low for your location. If you don’t change your location, your staff, your marketing, or whatever your real problem is, there’s no reason to think that next year will simply be better than last year. This type of false optimism often wastes many years in the life of a practicing healthcare professional. 

For a complimentary copy of our CD, Leasing Do’s & Don’ts for Commercial Tenants, please e-mail DaleWillerton@TheLeaseCoach.com

Dale Willerton and Jeff Grandfield – The Lease Coach are Commercial Lease Consultants who ; while 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 DaleWillerton@TheLeaseCoach.com or visit www.TheLeaseCoach.com