If you have a business that operates out of a commercial space, whether it is an office building, an industrial facility/warehouse, or a shopping center, you will be faced with the following question: “Should I renew my lease?” No matter the length of your lease, whether three years or five years, the end of your term always seems to come quickly! In some cases, it is easy to let your lease expire and continue on a “month-to-month” lease in a “Holdover” period. There are pros and cons to this as you will see both compared below.
Why should I renew my lease?
- Lock Your Rental Rate: In a month-to month tenancy, the Landlord can raise your rent at any time as long as it is in accordance with local and state rent regulations. So if you are happy with your lease rate, you may want to go ahead and renew your lease to ensure that your rate doesn't change.
- Company Security: Without a lease your Landlord can provide you with a 30-day notice to vacate. This could be disruptive to your company and your employees, especially in a tight real estate market! Renewing your lease will help provide future stability for your business.
- Improve Your Space: If you are in need of paint, carpet or other aesthetic office improvements or if your space needs to be modified, the “renewal period” is an opportune time to pursue (and negotiate) these. Renewing your lease doesn't have to mean that everything remains the exact same. As a tenant, you can engage with a broker to help you re-negotiate your lease during that renewal period to improve upon any aspects of your lease that you aren't thrilled with.
Why should I not renew my lease?
- Market Conditions: In a soft real estate market with high vacancy rates, you may want to consider taking some time to explore the market with your Broker. Because of the risk of losing you as a tenant, the Landlord is not likely to raise your rent or give you notice to vacate. Furthermore, with high vacancy rates, other Landlords in the market may try to incentivize you to move to their property.
- Company Growing Pains: If your company is expanding and there is a short term (up to 18 Months) possibility of adding employees and space, you may want to put renewing your existing lease on hold. In this scenario, it may be savvy to request a 12-month lease extension at the same terms and conditions. This would allow you to see how things shake out at your company and re-assess your space needs.
- Building / Landlord Issues: If you are in a building where there is a substantial need for exterior or interior updating or if there are deferred maintenance issues, hold off on jumping into a new lease term. Additionally, if there are increased vacancies as a result of absentee Landlord related items, this is another sign that the property could be in trouble. Both of these may indicate that it is time to engage with a broker to see what else is out there.
During the final 6-12 months of your lease term you should take all of these items into consideration and assess your game-plan. Keep in mind, the larger the occupied space, the more analysis, lead-time, and “market intel” should be considered. As a tenant, it is also important to note that it is the Landlord that pays a broker's fee, so it does not cost you anything to engage with a broker and discuss your options!