When Should I Start to Think About My Lease Renewal?

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HS_Rick_KingeryBy Rick Kingery

Vice President, Delaware for Colliers

Whenever there is an endpoint in a lease – whether it is an expiration or termination option – an opportunity is created for the prepared tenant.

Up-market or down-market, the moment there is a potential break point in your lease is the time to evaluate how your company is utilizing the space it is in and whether your real estate is aligned with your mission.

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Navigating the process can be complicated, so it’s best to know, first of all, how early do you need to start the process? The guiding principal should be to get ahead of and stay ahead of the leverage curve.

Screen Shot 2016-06-06 at 8.00.32 PMAs the date gets closer to your expiration there becomes a moment in time when you cannot accomplish everything you need to to effectively move or renegotiate.

You don’t want to become “a captive tenant” where there is no longer competition for your business but rather, you are beholden to your landlord who is “allowing” you to stay, on their terms.

When does this occur?

Typically for an office tenant who does not have a specialized fit-out (i.e. laboratory or data center), this happens when you get inside of four months before lease expiration. This assumes one month to get through lease language and three months to secure permits and construct new move in space.

Kevin Quinn, Director of Management and Leasing for The Commonwealth Group, has negotiated hundreds of office leases over the years.

Because the design can change a lot during lease negotiations, which can then delay the process and add substantial costs he suggests the following: “I encourage landlords, tenants and their representation to collaborate on the initial design to ensure the space is attractive and functional,” he said. “If we can nail down most of the details in the initial design, the tenant is more likely to get the space they expect and be much happier over the course of their lease.”

“Project schedule is always a critical component of a commercial lease transaction,” according to Michael Turrick Vice President of Leasing with Delaware’s largest office space landlord, the Buccini/Pollin Group.  Following a lease negotiation which he notes “is a significant achievement in its own right,” the architectural design finalization, construction bidding, and securing construction permits phase begins. “This takes up a substantial amount of time before any physical work within a building can take place.” He noted. Everyone benefits from the informed consumer, because in the world of office space “a tenant’s anticipated move-in date is typically a fixed date.”

In general, major Landlords view themselves as service providers to their tenants and want to collaborate with them for mutual gain and long term success and the process does not have to feel adversarial if done right.

In Delaware and Pennsylvania if you begin your planning approximately one year in advance of your lease expiration, you will find yourself in a comfortable position to evaluate options and make strong informed decisions for your business.

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