Lease renewal clauses are very important for tenants in the sense that they provide them the opportunity to continue with a profitable lease or to exit out of an unprofitable one. This blog focuses on certain metrics tenants should consider before renewing a lease.
The renewal clause
This is the obvious starting point when analyzing your lease’s viability in terms of renewal. Does your lease have a renewal clause? What does it say exactly. In most cases, if you intend to renew your lease, as a tenant, you will have to provide the landlord with a notice expressing your intent to renew the lease. Your lease will usually also stipulate a timeframe within which the notice is to be provided and such notice is usually a couple of months or days prior to the expiration of the then current lease term. In some cases the renewal clause may also mention the rent for the new term, that you would owe the landlord and the duration of the next lease term should you choose to renew the lease.
Sometimes, leases have automatic renewal clauses in which case, the lease automatically renews for the next term at a said rental rate if the tenant doesn’t provide a notice to terminate it. In both cases, as we can see, there’s a need to provide notice to the landlord within a stipulated period before the existing lease term expires.
So, as a tenant, it is important to peruse the renewal clause of your lease agreement thoroughly and also be alert and keep an eye out for the notice period and key dates, so you don’t miss out on a good deal by failing to renew a profitable lease on time.
Do your research
The next then to consider is, whether the lease agreement is worth renewing in the first place. When trying to determine this, ask the following questions to –
- Is the location of the property beneficial to you? Is it specifically helping in bringing in clients (if you are a office/professional service provider) or increasing sales revenue (if you are in retail)
- Are you getting any special benefits (eg. Governmental grants, tax credits) because you are operating your business in the particular leased premises?
- At what rental rates are other similar, comparable properties in the vicinity priced? An in-depth comparative analysis will help you understand if you are being charged fair rental rates by your landlord and will also help you negotiate your rent for the upcoming term, should you decide to renew your lease
- Are there other, similar properties available for lease in and around your current leased premises? If yes, then you should spend some time checking them out, do a bit of quote shopping and understand the pros and cons of the available options.
Doing your research will not only help you make the right decision with respect to lease renewals, but it will also help you negotiate better terms with your landlord. For example, if you find comparable premises in your area are priced less in terms of rent or have better amenities or other perks, you can negotiate with the landlord for a better deal such as reduced rent or ask them to provide you with Tenant Improvement (TI) allowance.
Have a strong lease administration process
While the boxes to check in this checklist for lease renewal may seem pretty straightforward, it becomes complicated when you have a large lease portfolio. When you have thousands or even hundreds of leases with different renewal dates and varying terms and conditions, it can get overwhelming. If that sounds familiar, you should reach out to a trusted lease support service provider who can take care of this for you. A lease administration services provider will have a large team of experienced lease administrators who can help you stay on top of your lease portfolio irrespective of its size.
Also, make sure you invest in a lease administration software platform which captures important dates such as the last date for exercising lease renewal options, and also generates alerts in a timely manner so you have the time to think through, calculate and take a well-informed decision regarding the renewal.
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