Factors to Consider Before Renewing a Commercial Lease

Your commercial lease is coming to an end, and here you are, faced with a big decision. Do I renew my lease or is it time to move on? This is a pretty loaded question, considering the implications of both choices. Moving can be a really big pain (as well as quite costly), but staying put might not be the best decision for your business, either! The only way to make a sound decision is to weigh out the pros and cons of each and dig deep to get clarity on exactly which choice will offer the most benefit. Here are a few factors you should consider:

First and foremost, make sure you give yourself ample time to make the decision that best suits you. Don’t put off the decision making process under the false belief that you have a lot of time left in your lease. The choice to move your business or renew your lease should begin about a year prior to it ending. That’s right, at least a year! If you do choose to relocate, finding your new space can be a relatively lengthy process and you want to ensure that you have enough time to search, negotiate and secure a new home for your business. If you choose to renew, your landlord will likely require anywhere from 6-12 months’ notice (or however outlined in your original lease) and you may need to submit formal paperwork. Even if you aren’t renewing, it is common courtesy to give your landlord sufficient notice.

Size of the Space
Another factor to take into consideration is the size of the current commercial property you are occupying. Take inventory of your time spent in the space to realize what was working and what wasn’t. If the size of the building currently feels adequate, do you foresee your company growing during the span of your next lease? Do you feel as if there is too much unused space in your current location? Will you need all of that extra space in the near future or is it an unnecessary drain on your budget? If your space has felt too small or inadequate to meet the needs of your business, you can probably safely assume that you’ve outgrown it and it’s time to move to a new space.

Commercial properties can be quite costly, particularly depending on where they are located. Prior to your lease ending is the perfect time to reassess your current budget and determine whether or not there could be a better alternative for you. This is the time to begin researching comparable properties in the area. Are there any properties currently on the market that could offer you the same benefits as your current property at a potentially lower rate? This is also a great time to reassess your company’s needs. Perhaps, for example, you were initially intrigued by your current property because of its location in a trendy neighborhood with lots of foot traffic and you’ve realized that the majority of your business is referral based and, therefore, not so dependent on this type of exposure. This might be a circumstance where relocating could make much more sense and save you quite a bit of money. On the other hand, perhaps your current location has served to drive all of the right people to your business. In this case, it’s probably in your best interest to stay put.

Condition of the Property
As you approach the decision to renew or relocate, you will want to take some time to really evaluate the current state of the property you are occupying. Revisit your original lease to determine who is in charge of any large repairs that might be approaching so you have a clear understanding of your financial responsibility. The replacement of HVAC systems, for example, can be quite costly. Also, consider the state of the building itself; ongoing structural problems that have not been adequately addressed by your landlord could spell trouble for the future of your business.

Rather than just exercising your right to renew, and signing on for a new lease term, you may want to consider renegotiating a lease for the same commercial space you are in. One of the troubles that can arise from simply renewing is that your landlord may not even be obligated to offer your new rental rate until you are already locked into your commitment to stay put. Rather than simply signing on the dotted line, consider preparing a renewal proposal that clearly outlines any changes you would like to see to the initial lease. Another way around this sticky situation is to exercise your option to renew, but to insert the new rental rate in your letter of intent.

So, rather than blindly renewing your commercial lease, take some time to pay attention to these factors so that you can make a clear and informed decision.

Connor Wieck | Associate Broker
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