Lease Renewal Dos And Don’ts

How-to Handbook

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Every year in North America, businesses renew approximately two million commercial leases. Wherever you are leasing space for your coffee shop, you’ll eventually face a lease renewal negotiation with your landlord. Starting with your end goal in mind and planning far enough in advance makes this process much easier and may well save you from a sizable rental increase. Here are a few dos and don’ts to remember:

DOs

Create competition for your tenancy. Negotiate on multiple locations simultaneously— especially with lease renewals. Even if you don’t want to move, create options so you can work one landlord against another.

Plan well in advance. For existing businesses and lease renewals, we recommend that you start at least nine to twelve months ahead. This allows for ample time to complete paperwork, search for alternate sites (if necessary), and account for Murphy’s Law.

Keep your success quiet. One reason your landlord will raise your rent for the lease renewal period is due to your success. If you have been profiting in a particular location, you likely will not want to move but simply absorb the rental increase. Some landlords and their agents will take advantage of coffee shop owners knowing how time consuming and inconvenient it can be to move and set up a new business.

Talk to other tenants. For lease renewals, talk with neighboring tenants who have recently renewed leases. Be direct. Ask what the landlord agreed to in terms of rental rates and further tenant incentives.

Negotiate for lease renewal incentives. For some reason, tenants neglect or are simply fearful of negotiating for lease renewal incentives. If your lease is expiring, ask yourself what inducements would the landlord give to a new coffee shop owner just coming into the property, like free rent and tenant allowances. If these were being offered to a new coffee shop owner, then why wouldn’t an similar, but established, tenant get the same (or more) consideration?

DON’Ts

 Don’t have false optimism. When coffee shop owners tell us their business isn’t doing well, but they want to renew their lease anyway, this is false optimism. Without changing location or something else about the way you conduct business, you should not realistically expect your next five years to be better than your first five years. Moving may be difficult, frightening, time consuming, and expensive, but necessary.

Don’t settle for your same rental payment. A lease renewal rent reduction can be attainable. If your landlord is leasing space to new tenants at less than what you are currently paying or if your current rental rate is artificially high because of your last tenant allowance, a rent reduction on your renewal term should be a given.

Don’t accept the first offer. Once your landlord has made the first offer or proposal regarding your lease renewal, the real negotiations begin. Don’t jump to accept that first offer, even if it seems reasonable. With patience and good communication, you can counter almost offer any first offer, which may be nothing more than a smokescreen anyway. We counter-offer multiple times for the best end result.

Don’t allow the landlord to retain your deposit. If you have paid the landlord a hefty deposit on the property, request this back upon your lease renewal date. You have proven yourself as a responsible tenant over your initial term.

Don’t disregard your operating costs. Having your lease and operating costs audited is a simple and effective way to keep your landlord and property manager honest. Operating costs can be padded or miscalculated and coffee shop tenants can pay too much. Often, it can be advantageous for groups of tenants sharing the same property to unify for an operating cost analysis.

Don’t exercise options. Even though you have a renewal option, you may not want to exercise it – especially if the renewal term rental rate automatically increases or can’t decrease. If you are certain that your landlord wants you to stay and market rates have softened, you may want to negotiate your renewal without, officially, exercising the option.

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).