Renegotiating A Commercial Lease

by Prince Licaylicay | May 14, 2020 | All Articles, Leasing

Let’s examine renegotiating a commercial lease. If you are currently leasing commercial space and your lease expiration date is within a year from expiring. Now is the time to consider reviewing your lease and/or renegotiating your lease down to today’s market rates. Many commercial tenants are struggling to pay lease rates from 3 – 5 years ago as the economy fluctuates. We, at Commercial Properties, Inc. are in the trenches, working with landlords, owners and tenants navigating through the commercial real estate up and downs. We work with tenants everyday looking for space, but many of them would prefer to stay in their current lease. They struggle to get the landlord or owner to lower their lease rates or work with them to find a solution. My best advice for negotiating a lower rental rate is to work with a professional commercial lease consultant who can do this for you. I have successfully advocated for many tenants and negotiated, often substantial, rent reductions. Doing this effectively takes both patience and experience. Remember that without any help whatsoever, you are going to possibly remain paying excessive rent.

Below are a few basics to follow when renegotiating a commercial lease

Start Early: Lease renewal negotiations should begin six (6) to twelve (12) months before the term expires. If you can’t get a decent renewal rate and decide to move, would you rather know this with six months or six weeks left on your lease term?

Create Competition for Your Tenancy:
Even if you don’t want to move, shop around and collect written offers from other landlords. These can be used as leverage when renegotiating with your current landlord.

Have the Landlord Give the 1st Offer:
For a new lease or a renewal, resist making the first offer. By doing this prior to your renewal, it implies that you will stay – thereby undermining your negotiating strength.

Ask for More Than You Need:
When negotiating for free rent, tenant allowance, or any other term, always ask (negotiate) for more than what you need. If you need three (3) months of free rent, ask for five (5) months. Resist beginning at the level that you are prepared to accept. Also, by asking for more than what you expect to receive, you position yourself to strategically give and take depending on the importance of certain items to you.

Negotiate Non-Rent Issues:
These include parking, signage, carpet, paint and any deposit or personal guarantee which you may have previously agreed to. Do you need more spaces for customers and/or staff? Would you like parking stalls closer to the property doors? Would you like to see more/better signage with your business name outside of the property? Is the landlord holding a deposit of yours? As a current tenant, the landlord will want to you to remain and the cost with these non-rent items are typically less than having to attract a new tenant.

The biggest mistake that tenants can make is not developing alternatives to their first choice. Once a landlord believes that a current tenant is planning to renew, immediately the tenant loses his negotiating leverage and the landlord is in control. We often hear “I don’t want to move” or “It will cost too much to move” both of which are deadly statements if you want to renegotiate your lease. Every tenant must develop a plan “B”, “C”, etc. in the event you choose not to accept what the current lanlord is offering. This will allow you to enter the lease renewal negotiation in a position of power. A professional commercial lease consultant will ensure that your landlord is aware of your options you have in the market without creating an adversarial relationship. They will make you aware of deadlines and provide you with the negotiating leverage you need to achieve the best economics and business terms. Remember that tenants don’t get what they deserve; they get what they negotiate!

If you’re thinking about renegotiating a commercial lease, allow us the opportunity to work on your behalf and help give you the option of staying in your current space.

Investing In Commercial Real Estate?

Even after outlining all the information above, investing in CRE can still seem daunting. That’s why the Leveraged CRE Investment Team at Commercial Properties, Inc. is here to help you achieve your investment goals. Contact us at (480) 330-8897 or send us an email at request@leveragedcre.com.

Need help on how to get started investing in commercial real estate? We got you covered! We prepared a free e-book that will serve as your guide to achieve your long-term business goals or obtain that property you’ve always been dreaming of!

Phill Tomlinson is a commercial real estate broker with Commercial Properties, Inc. (CPI) in Scottsdale, Arizona, and owner of the Leveraged CRE Investment Team specializing in investment sales and tenant/landlord representation in the Phoenix and Scottsdale submarkets. Phill applies over 21 years of experience in the Real Estate industry helping investors and owners maximize their returns.

Bookmark www.leveragedcre.com to learn more about the Commercial Real Estate market and keep informed of relevant real estate strategies designed to maximize your income property investment results. Connect and follow Phill on Social Media at sm.leveragedcre.com/smplatform. #LeveragedCRE

Abated Rent on Commercial Leases

by Prince Licaylicay | May 7, 2020 | All Articles, Leasing

Let’s examine abated rent on commercial leases from both the landlord’s perspective and the tenant’s perspective.  The abated amount can be recaptured if a tenant defaults on the agreement. 

Abated Rent: A Landlord’s Perspective

In today’s market, it is common for landlords to give fully or partially abated rent as a lease concession to tenants. Occasionally the abated amount is staggered throughout the term (e.g., one month’s rent is abated every year), but more often the abated rent is front-loaded at the beginning of the term. The Landlord would like to have the Abated Rent Recaptured If Tenant Defaults but the Abatement is factored into the overall economics of a lease deal, based on the tenant’s payment of rent during the entire length of the term. Landlords should make sure that the lease allows the landlord to have the abated rent recaptured in the event of a tenant default.

A common mistake that landlords make with respect to abated rent is they state that the rent during the abated period is $0, free or abated. Instead, the lease should provide for a rent amount, but state that the rent is abated if tenant fully and faithfully performs for the entire term of the lease. If the tenant defaults, then the landlord can recapture the abated amount in its damages.

Abated Rent: A Tenant Perspective

The same type of situation can occur with a Tenant. They should be careful to negotiate these provisions as well. First, the tenant should require that the landlord may only recapture the abated portion if the landlord terminates the lease due to a tenant default. The full and faithful performance language is ambiguous and a late payment of rent for 1 day (or similar minor breach) could be interpreted as a trigger event. It would be unfair for the landlord to claim that the abated amount is due unless the breach is material and the tenant has an opportunity to cure and fails to do so.

Second, the tenant should negotiate that the landlord’s ability to recapture the abated portion is reduced over time, since the landlord is receiving the benefit of the lease over time. For example, if the lease has a 10 year term and tenant performs for 7 years before breaching, the tenant could negotiate that the landlord received 70% of the intended benefit of the lease and should only recapture 30% of the abated amount. This is a business issue for the landlord and tenant to negotiate. To avoid having a Landlord have the Abated amounts Recaptured If Tenant Defaults, the tenant should consult an attorney to make sure the appropriate language is in place to protect their interests.

Prior to using any language or concepts from this blog entry, consult with an attorney.

Investing In Commercial Real Estate?

Even after outlining all the information above, investing in CRE can still seem daunting. That’s why the Leveraged CRE Investment Team at Commercial Properties, Inc. is here to help you achieve your investment goals. Contact us at (480) 330-8897 or send us an email at request@leveragedcre.com.

Need help on how to get started investing in commercial real estate? We got you covered! We prepared a free e-book that will serve as your guide to achieve your long-term business goals or obtain that property you’ve always been dreaming of!

Phill Tomlinson is a commercial real estate broker with Commercial Properties, Inc. (CPI) in Scottsdale, Arizona, and owner of the Leveraged CRE Investment Team specializing in investment sales and tenant/landlord representation in the Phoenix and Scottsdale submarkets. Phill applies over 21 years of experience in the Real Estate industry helping investors and owners maximize their returns.

Bookmark www.leveragedcre.com to learn more about the Commercial Real Estate market and keep informed of relevant real estate strategies designed to maximize your income property investment results. Connect and follow Phill on Social Media at sm.leveragedcre.com/smplatform. #LeveragedCRE