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March 30, 2020 | by
Reviewed by real estate expert Michael Colacino
Talking to businesses all over the city about finding commercial real estate, a question that they regularly ask—especially in the months prior to a current lease expiring—is whether or not to use the services of a broker when negotiating lease renewals. Many businesses would prefer to avoid having to involve a third party for a variety of reasons, whether it is concern about the rate of cost, not wanting to take the time to find a suitable professional to help, or simply because they feel they can handle a new agreement without assistance.
Putting aside those potential reservations, though, the truth is that it certainly is a good idea to procure the services of a real estate broker when preparing to re-negotiate a rental agreement.
A negotiation is a negotiation. Regardless of whether the opposing party is a different landlord or one with whom you’re familiar, whether you are open to moving or determined to stay, you can always benefit from the expertise of a licensed professional like a broker who is experienced in representing tenants. And, in many ways, when it is negotiation time, you should consider a lease renewal like a new lease.
Here are a few reasons why getting a broker to help you negotiate a lease renewal is a wise move that can save you a lot of headaches:
Having an existing lease with one landlord doesn’t preclude you from being free to negotiate a fresh agreement with another. If you are willing to “shop around” during the months before your agreement expires and see what else is out there before renewing, you will want a market expert with first-hand knowledge of what commercial real estate is available as a guide.
When you bring a professional to the table with you, your landlord will know at that point that you are serious about finding the best deal possible for your business (lower rent, perhaps?), and they will be all the more motivated to fight for your renewal and think twice about a rent increase.
Because your existing landlord wants to keep your company in his property, and competing landlords are trying to lure you away, you are all of a sudden the hot ticket item that everyone is fighting for. Feels good to be wanted, doesn’t it? It’s an ideal situation for a renter to be in and it’s CRUCIAL to have an experienced broker willing to help you sift through and digest every proposal and offer on your way to making the best decision for your business at this time.
Renewing your lease doesn’t just mean signing an extension to the old offer under the exact same terms and exact same monthly rent.
While your business may be staying in the same suite, it’s essentially a new agreement and may require tenant improvement (T.I.) concessions towards suite modifications in order to get the office up to snuff to meet your needs at this time.
Alternately, you may want some free rent at the start of the new agreement as a bonus for re-signing and continuing on for an additional term. Having a broker on hand to negotiate the revised terms and rent can only benefit the tenant.
Nobody will already have a more up-to-the-minute working knowledge of the local market than an experienced commercial real estate broker. Armed with the knowledge of market rates, recent trends, what types of properties are available and in what locations, and so much more, a real estate broker is going to be able to share that knowledge when necessary during negotiations.
They will also be able to use that knowledge to prepare you for what is realistic in negotiations, and can also potentially lead you to a better deal with a different property (an increase in square footage might be nice if you can get it!).
The ability to negotiate is a skill worth its weight in gold – and not everyone has it (actually, most people definitely do not have it!). Most of us don’t have the nerve to haggle in a market, let alone the stamina and strategic ability to carry out more consequential negotiations where a lot of money is on the line.
Professional real estate brokers negotiate deals for a living, so they can bring that valuable experience to the table when you are working on a renewed deal with your office’s landlord.
Even if you have done your homework early and you know for certain what rent increase (if any) you are prepared to pay, that doesn’t necessarily mean you want to be the person to do the deal-making. Sometimes negotiations between tenants and landlords can be uncomfortable or contentious. If you want to ensure that your relationship with your landlord remains friendly, it might put you more at ease to have a real estate professional carry out the negotiation with the property owner on your behalf.
Whether you are an executive at your company, or an office manager who has been put in charge of acting on behalf of the organization when dealing with the landlord, chances are you are not an experienced real estate expert. The smartest of us can be very intimidated when we read a lease agreement full of unfamiliar terminology, vague phrasing, confusing provisions, and barely decipherable legalese. But a commercial real estate broker will be extremely familiar with rental agreements and their various provisions. They will be able to identify issues and raise concerns in the lease, ask the right questions, and clearly explain the implications of anything you don’t understand.
Not only will an active real estate broker know important terms and provisions, they will also be up-to-date on laws and policies related to the industry. This is another important layer of knowledge that they can share with you, ensuring you are in a strong negotiating position.
Most commercial property owners can be expected to act in good faith and try to come to a mutually beneficial agreement for both parties. However, in the event that you are dealing with a more shady operator, it helps to have a broker on your side who will know what stunts to look out for in the event that someone is trying to pull a fast one on you. A real estate professional will be familiar with provisions that could be bad for your company and will be able to raise them to you so you avoid the traps.
A real estate broker can be your trusted advisor in the renewal process. Be upfront with them that you want someone to be completely honest with you, about everything from money to terms. They can then be realistic about your situation, whether that means you are in a powerful position or whether it means you are in a weaker position where you might have to accept unwelcome news—like the potential for a rent increase, for example.
Although we might instinctively think of negotiations as a kind of “war,” and the real estate broker as a champion for “our side,” it may not need to be like that at all. In fact, sometimes one of the biggest benefits of partnering with an experienced real estate broker is that the best of them often have great relationships that they have built year after year with local commercial real estate owners. It is actually the trust they have established with landlords that make them such a worthwhile ally when it comes to landing the best possible deal for the best possible office for your business.
So hopefully you have been convinced that bringing a real estate pro on your side is a good move. Now you’re thinking, okay, what are the costs going to be? How a broker gets paid on a renewal can vary. Some landlords will pay a commission, some will pay a commission to the renewing broker only if that broker represented the tenant in the original lease signing, and some won’t pay a commission at all.
Should the latter be the case, the broker will work for a fee from the tenant, but that cost will more than pay for itself several times over with the savings a good broker can get the tenant in the renewed lease agreement.
Like most things in the commercial leasing business, it’s all negotiable.
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