Five 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 big decision, considering the implications of both choices. In addition to being costly, moving can be a pain; however, 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, digging deep to get clarity on exactly which choice will offer the most benefit. Below are a few factors to consider before renewing a commercial lease.
Time
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 enough time left in your lease.
The choice to move your business or renew your lease should begin about one year before its ending.
That’s right, at least an entire year! If you do choose to relocate, finding the right space for your business can be a lengthy process. Moreover, when it comes to today’s hot CRE market, you want to ensure 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 six to 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 has worked and what hasn’t worked for your business.
If the size of the building currently feels adequate, do you foresee company growth during the span of your next lease? Or, on the opposite hand, do you feel there is unused space in your current location? Will you need that extra space soon 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 likely assume you’ve outgrown it and it’s time to move into a new space.
Costs
Commercial properties can be quite costly, particularly depending on where they are located. Reassess your current budget and determine whether or not there could be a better alternative for you before your lease ends.
This is the time to begin researching comparable properties in the area. Consider: 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. Over time, however, maybe you’ve realized that the majority of your business is referral-based and, therefore, not so dependent on this type of exposure.
The above, for example, might be a circumstance where relocating makes more sense and could 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.
Property Condition
As you approach the decision to renew or relocate, you will want to take some time to 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.
Negotiations
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 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 from 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.
A Final Word
So, there you have it – Five factors to consider before renewing a commercial lease. 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.
Interested in learning more about the leasing options available to you? Read our article “How to Navigate Different Lease Types and Their Obligations.”
