Tips for Renewing Commercial Leases

Tips for Renewing Commercial Leases

11 September 2020

By Kylie Fennell

Renewing commercial leases involves a careful balancing of client and tenant needs and strong negotiation skills; fortunately, there are a few things you can do to make the process run as smoothly as possible.

We spoke to Hayden Bennett, Managing Director, Commercial Property Group and REINSW Commercial Chapter Committee Member, to get his tips on renewing commercial lease agreements.

Know the Answers

Bennett says it’s important for agents to be prepared for when the window to exercise the renewal option, found in most commercial leases, is open.

“It’s best practice to reach out to the landlord and tenant when that window opens. Don’t pick up the phone until you have done your research. Have market intelligence on hand so you know whether the tenant is paying too much or too little.

“Know how to answer when a tenant says ‘you’re not going to put up the rent are you?’,” he says.

“Speak to the landlord first about their long-term intentions for the property and their view of the tenants. In our practice, ninety per cent of the time the landlords and tenants have good relationships and the landlord wants them to stay. So, then you have a conversation with the tenant advising them that the window is open.”

Bennett says since landlords typically want to receive more rent and tenants wish to pay less, transparency and clarity is key to negotiating the commercial lease renewal.

“Show that you’re an expert in the market. Gather your market intelligence for what the new rent should be and have evidence you can provide if challenged.”

Bennett says being able to clearly explain the reasoning behind the revised rent can avoid a breakdown in negotiations and the need to engage an independent valuer.

“An independent valuer will determine the rent valuation – which can be above or below what was first suggested – and it is generally set and binding. Going to an independent market review is something you don’t want to do. It’s the last resort of negotiations and can kill relationships.”

Proactivity is Key

Proactivity is also important Bennett says in cases where the tenant doesn’t want to renew their lease.

“Reaching out when the option to exercise window opens puts you on the front foot if the tenant isn’t going to renew. You will be ahead of the game in terms of finding another tenant.”

Advising a tenant the window is open is also important, Bennett says, as they may otherwise forget or overlook the opening and closing dates and potentially compromise their business.

“It’s amazing the number of tenants that don’t know those dates. While big corporations have people managing their tenancies and are across this. Smaller businesses and mum and dad tenants don’t always remember.”

Bennett reminds agents that every commercial lease, client and tenant is different and requires a careful balancing of both parties’ needs.

“You have to bring people together, understand all of their needs and have the information on hand to support the negotiations.”

Like anything in real estate, it seems relationships and having honest and open conversations are critical when it comes time to renew a commercial lease.

Want more?