Leases and lease renewals are not
typically conducted on a level playing
field. By planning ahead and having
professional representation, it is possible to negotiate a
lower lease rate and receive a substantial tenant
improvement allowance and free rent.
How does the lease renewal process work?
Renewal options include terms for specific lease rates,
concessions such as free rent and tenant improvement
allowance, and whether a new base year for operating
expenses will be granted. Whether or not a renewal
clause exists in the original lease, all of these terms
are negotiable and play a large role in the financial
structure of a lease renewal.
When should the process begin?
As a rule of thumb, you should begin to consider
the renewal process 12 – 18 months in advance of
your lease’s expiration. Landlords view this as an
opportunity to push rents higher as the window of
opportunity to relocate closes. If tenants hold over
(stay in the space after the lease expires), they often
see penalties of 150% – 200% of their last month’s
rent and can also incur damages if they holdover
without permission. The bottom line is that if there is
not ample time to relocate, if necessary, the landlord
has too strong an advantage.
What type of cost savings can be achieved through
a successful renewal?
If properly negotiated, you can achieve significant rent
savings, a build-out allowance, free rent and other
concessions. It is very common to start a lease renewal
term at a lower lease rate than what you are currently
paying.
Below are actual examples of recent lease renewals for
dental practices located in the Midwest. These cases
illustrate the importance of properly negotiating your
renewal:
Case #1
Landlord “Best Offer” Final Terms
Starting Lease Rate (Per SF) $24.00 $18.00
Monthly Payment $4,000 $3,000
Other Landlord Concession Tenant option for early termination in
the event the practice is sold
Total Savings (5-year lease) $60,000
Takeaway: Many landlords see lease renewal as an
opportunity to aggressively raise rates. Good renewal
negotiation can drastically improve on what is claimed
to be their “best offer.” Additionally, certain lease
terms make it easier to sell your practice and can be
achieved during renewal.
Takeaway: Renewing your lease without properly
negotiating the terms could lead to overpaying by
hundreds of thousands of dollars.
Takeaway: Lease renewal negotiations are
multifaceted; significant savings can be achieved
through concessions other than lease rate.
Tyler Van Eps and Carr Healthcare Realty provide real estate services to
healthcare tenants and buyers. Tyler specializes in representing dental
practices. Telephone: 612-708-2631