For tenants who are already occupying spaces, quite often they will have a lease renewal option in their Lease Agreement. These options generally give the tenant full discretion on extending their lease by a stipulated period of time, usually but not always the same length of time as in the initial lease term. For example, a five year lease will often have a renewal option for an additional five years. As mentioned, it's usually at the tenant's sole option whether to renew or not, but unless it's stipulated specifically (and it's usually not), the rent price for the renewal term will be determined at the time of renewal based on market rates at that time. As the end of your industrial warehouse lease approaches, it's important to start thinking about whether you want to renew your lease or move on to a new location. What may often seem like a simple decision may not be so simple when you start to break down all the factors. Furthermore, many tenants don't realize that even if you want to remain in your space, there may be many benefits to having a Commercial Real Estate Broker represent you in the renewal negotiations.
Here are some tips to consider as you navigate the renewal process:
Know the deadline: The most critical item when considering a lease renewal is the deadline by which you must exercise your renewal option. Ideally this date is identified and flagged as a critical date early on in your lease so that it is not overlooked, but as the end of your lease approaches (at least 12 months out), it is critical that you identify this timeline and start engaging with your landlord prior to that date. For example, a lease may stipulate that the tenant has the option to renew the lease by providing written notice to the landlord no later than 8 months before the end date of the current lease term. Though in many cases landlords will make exceptions for this, especially if your relationship with the landlord is positive, landlords legally do not have to honour a lease renewal option if the option is not exercised prior to the date stipulated in the agreement.
Review your current lease: Before you begin negotiations with your landlord, take the time to review your current lease and make a list of any issues or concerns you have. This will help you identify any changes or improvements you would like to see in your next lease.
Assess your business needs: Think about what your business needs are now and what they may be in the future. Consider factors such as your current and projected growth, the layout of the warehouse, and any additional amenities or features you may need.
Negotiate with your landlord: Once you have a good understanding of your needs and concerns, it's time to start negotiations with your landlord. Be prepared to discuss your current lease, any issues you have with the property, and what you would like to see in a new lease. It's always a good idea to shop around and compare prices and terms at other industrial warehouse properties. This can give you a sense of what the market is like and help you negotiate a better deal with your current landlord. This is where working with a commercial broker can have immense benefits, as they will have access to the most up to date listings and market data for comparable spaces. This will help you to see what other options are available - some of which may be a better fit for your organization - as well as what the current market rates are which will guide negotiations with your existing landlord if you decide to renew in your current space.
Consider the future: While it's important to focus on your current needs, it's also a good idea to think about the long-term future of your business. If you anticipate significant growth or changes in the coming years, it may be worth considering a larger space or a longer-term lease to provide stability for your business.
By considering these factors, you can negotiate a lease renewal that meets the needs of your business, or move on to a different space which may suit your business requirements more adequately. In either case, working with a knowledgeable and qualified commercial real estate broker who specializes in industrial warehouse properties will be a huge asset. And, as is always the case, you as the tenant will not pay any fee to your broker as the fee is paid by the landlord, even on renewals.
If you have a lease renewal coming up in the GTA and would like to chat about your options, reach out to me today.