Whether it’s a boutique store in a shopping centre or in a strip of shops, or office space, or even a warehouse or factory, commercial properties mostly operate under a formal lease agreement. Unfortunately, such terms must come to an end, which prompts you to make the ultimate decision—to stay and renew the lease, or to find other suitable space.
It’s recommended to act at least 6 to 12 months before your lease expires to ensure maximum negotiating leverage with the landlord when agreeing new terms. The last thing you want to do is to push it to the bottom of your to-do list, especially since your business likely relies on the space for continued growth and success. Allowing your lease to expire can put your operations at risk.
The process may compel you to renegotiate rents, extensions, and even termination, if you decide to relocate to other premises. This could mean exerting more time and effort and cannot be done at the last minute. The same holds true if you wish to terminate your lease agreement.
You’ll want to act sooner rather than later to avoid any problems, particularly ones that may cost you your business. Here’s what you can do before your commercial lease expires:
Step 1: Decide well in advance whether to renew or terminate your lease
Depending on whether you choose to renew your lease with new terms and conditions, or terminate it - the idea here is to ensure you have as much time as possible before the lease expires. Choosing to end the contract may not always be easy.
Depending on your lease, you may be required to return the space to its original condition, meaning that make good works are required. Wear and tear is to be expected, but any works will need to be completed prior to the end date. Keep in mind that you’ll likely be responsible for damage, repair and modifications works you have undertaken during the term of your lease.
Should you wish to continue your lease, however, you need to begin your negotiations with the landlord. At the end of the day, you’ll want to choose what’s best for your business.
Step 2: Renew terms - Speak to your landlord about negotiating new terms
Should you decide to extend your commercial lease, you should start negotiating with your landlord as soon as possible by asking for a lease proposal of the new terms. This is sometimes also called a Heads of Agreement, Letter of Offer or a Terms Sheet.
Extending the term is usually easy to do, but you’ll need to agree the new rent and any additional new terms. It is not necessary, at this stage, to tell the landlord you will be staying, as you will want to ensure you maintain leverage in your negotiations for the new contract terms and conditions. After all, if the landlord proposes new terms and conditions which are not agreeable to you, you may decide to relocate your business and end the lease at the expiry date.
The new terms can take quite some time for all parties to agree. While a verbal agreement helps, make sure to also express your intentions in writing, keeping a record or emails along the way. Doing so ensures that you have an official record of your request and subsequent negotiations, keeping your business well-protected.
Should you decide to extend your commercial lease, you need to begin the process of renegotiating. You’ll want to be given a new contract, which ensures total protection. This new document will serve as your official security agreement, ensuring that you won’t be asked to leave with little to no notice. Make sure to review the contract as carefully as possible. Should you wish to posit more favourable terms and conditions, don’t hesitate to do so.
Step 3: Ending the lease
If you make your final decision to end the contract, make sure you advise the landlord as soon as possible. Keep in mind that your obligations under the lease will extend until the lease expiry date and all your exit obligations have been undertaken. It is recommended that all end of lease negotiations are supported and documented to protect your interests.
The Bottom Line
When it comes to your commercial lease, don’t be afraid to negotiate hard. Your business location serves as a huge financial investment, which is also a commitment you need to gain the best possible value from. You’ll also want to end the term amicably if possible, but the idea here is to give yourself as much time as possible and do your due diligence before making your decision whether to stay at your premises or relocate. The biggest business decisions always take time!
In need of professional advice? For the best commercial lease negotiation services, we’ve got you covered. We are Sydney’s leading lease negotiators, ensuring that you save more and gain value back in the long run. Contact us today at 0401 996 646 to learn more.