Common Mistakes Tenants Make When Renewing a Commercial Lease

Renewing a commercial lease is a crucial decision that can have significant implications for a business. It’s a process that requires careful consideration and attention to detail. Unfortunately, tenants often make avoidable mistakes during the lease renewal process that can lead to unfavorable terms, increased costs, and unnecessary stress. Let’s review some of the common mistakes that can happen when renewing a commercial lease so you can try to avoid them!

1. Failing to Start the Renewal Process Early: One of the most common mistakes tenants make is waiting until the last minute to begin the lease renewal process. This can result in limited negotiation time and less leverage when it comes to discussing terms and conditions. Ideally, tenants should start the renewal process at least six to twelve months before the lease expiration date. This allows ample time for evaluating options, negotiating terms, and considering alternative locations if necessary.
2. Not Reviewing the Lease Terms Thoroughly: Many tenants make the mistake of assuming that the terms of the new lease will be similar to the existing one. However, this is not always the case. Lease agreements can change over time, and it is crucial to carefully review the new lease terms to understand any modifications or updates. Pay close attention to rent escalations, maintenance responsibilities, renewal options, and any additional fees or charges that may have been added.
3. Failing to Negotiate: Negotiation is a critical aspect of lease renewal. Some tenants make the mistake of accepting the landlord’s initial offer without negotiating for better terms. It’s essential to be proactive during the negotiation process and advocate for favorable conditions. Consider factors such as rent rates, lease duration, renewal options, improvements and maintenance responsibilities, and any concessions or incentives that can be negotiated.
4. Overlooking Potential Alternatives: Renewing a lease doesn’t necessarily mean staying in the same space. Tenants often make the mistake of overlooking other available options in the market. Exploring alternative locations and comparing different properties can provide valuable leverage during negotiations. Even if the decision is to stay in the current space, understanding the market and having alternative options can help negotiate better terms.
5. Neglecting Due Diligence: Tenants should conduct due diligence before renewing a lease to ensure the property meets their current and future needs. Assess the condition of the space, identify any necessary repairs or renovations, and consider factors like accessibility, parking availability, and proximity to amenities. Conducting due diligence helps avoid unexpected costs and ensures that the space aligns with the business’s requirements.
6. Forgetting to Plan for Future Growth: Another common mistake tenants make is failing to consider future growth or expansion plans when renewing a lease. It’s essential to evaluate the scalability of the leased space and discuss options for expansion with the landlord. Including provisions for expansion or termination clauses can provide flexibility in case the business outgrows the current space or needs to downsize.

Renewing a commercial lease is a significant decision that should not be taken lightly. By avoiding these common mistakes, tenants can ensure a smoother and more favorable lease renewal process. Starting early, reviewing lease terms thoroughly, negotiating effectively, considering alternatives, conducting due diligence, and planning for future growth are key steps that tenants should take to secure a lease that aligns with their business goals and objectives. Remember, seeking professional advice from a commercial real estate expert can provide valuable guidance throughout the renewal process.