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4 Key Steps to Renewing Your Lease

By: Colin Carr

Lease renewals are not typically conducted on a level playing field. After all, most landlords are experienced real estate professionals and most doctors are not. By planning ahead and utilizing expert representation, it is very possible to negotiate a lower lease rate while receiving a substantial tenant improvement allowance and free rent. The following four key steps will help you capitalize on your next lease renewal opportunity.

Identify any renewal options in your current lease
An important clause found in most leases is a renewal option. This allows you to extend your lease for a predetermined amount of time (often three, five or ten years) by giving your landlord advance written notice. Renewal options may include terms for specific lease rates, concessions such as free rent, tenant improvement allowance and more. Alternatively, the renewal option may also call for a brand-new negotiation of all the financial terms based upon the current market. Whether or not a renewal clause exists in the original lease, these terms are all negotiable and play a large role in the financial structure of a lease renewal. It is important to understand what your current lease proposes prior to beginning a negotiation.

Start at the ideal time
You should ideally begin the renewal process 12 - 18 months in advance of your lease expiration. This is recommended to ensure ample time to compare all relocation options in the market before your current lease options expire. Tenants who miss their lease options incur more risk. Landlords view this as an opportunity to push rents higher as the window of opportunity to relocate diminishes. If tenants holdover (stay in the space after the lease expires), they often see penalties of 150 - 200% of their last month's rent and can also incur additional damages if they holdover without permission. If there is not ample time to relocate if necessary, the landlord will have a stronger position in the negotiation.

Avoid common mistakes
One of the most common mistakes practices make is negotiating without the help of a commercial real estate professional, specifically one who specializes in representing healthcare providers. Some believe they can save money by not using an agent; but to benefit in real estate, you must have leverage and posture. Landlords are in the business of real estate and negotiate with professional guidance. Selecting an expert to represent you provides the leverage needed to receive the best possible lease terms, while also saving you a substantial amount of time and energy and avoiding costly pitfalls. Further, landlords are typically responsible for paying commissions. This allows you to receive professional representation at no out of pocket cost.

Another mistake practices make when entering into a lease renewal negotiation is not being familiar with their current lease terms and risk exposure. Prior to contacting the landlord about a lease renewal, you should be well aware of your current lease terms including every option and deadline. Most leases contain options that must be exercised within a specific time period, typically six to twelve months prior to the lease's expiration. If you allow this period to pass, you risk losing all rights outlined in the option, which can cause the negotiations to begin at a disadvantage.

Understand how your current rate compares to the market
This may seem obvious, but most healthcare providers don't know for certain how much they are even paying per month or on a per square foot basis. Knowing what you are currently paying and how your rate compares to the market is especially important if you are thinking about renewing your lease. Your current lease rate can be vastly different compared to other options in the market especially if your lease has had automatic escalations over several years. The way to calculate your annual price per square foot is to multiply your monthly rent by 12 months and then divide by your square footage. Keep in mind that NNN or CAM charges (operating expenses for the property) are also calculated in the same manner. Most leases will only show the NNN or CAM charges that were effective at the beginning of the lease and will not account for increases after the first year.

Summary
Successfully negotiating a lease renewal is more than bartering, bluffing, or asking for a good deal. Landlords and their professional representatives are in business to make as much money as possible, even if it means taking advantage of uninformed or unprepared tenants. You can level the playing field by engaging your own professional representation, gaining competitive market knowledge and having multiple options to choose from. When done properly, a well-negotiated lease renewal can have a significant impact on your practice's profitability.

About the Author

Carr Healthcare Realty is the nation's leading provider of commercial real estate services for healthcare tenants and buyers. Every year, thousands of healthcare practices trust Carr to achieve the most favorable terms on their lease and purchase negotiations. Carr's team of experts assist with start-ups, lease renewals, expansions, relocations, additional offices, purchases, and practice transitions. Healthcare practices choose Carr to save them a substantial amount of time and money; while ensuring their interests are always first. Visit carrhr.com to learn more and find an expert agent representing healthcare practices in your area.

View all articles by Colin Carr


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Wells Fargo Practice Finance is the only practice and commercial real estate lender recommended for members of the American Dental Association.

ADA® is a registered trademark of the American Dental Association. ADA Member Advantage is a service mark of the American Dental Association. ADA Member Advantage is a program brought to you by ADA Business Enterprises, Inc., a wholly owned subsidiary of the American Dental Association.

All financing is subject to credit approval.

Wells Fargo Practice Finance is the only practice and commercial real estate lender recommended for members of the American Dental Association.

All financing is subject to credit approval.

Wells Fargo Practice Finance is the only practice and commercial real estate lender recommended for members of the American Dental Association.

All financing is subject to credit approval.

Wells Fargo Practice Finance is the only practice and commercial real estate lender recommended for members of the American Dental Association.

All financing is subject to credit approval.

Wells Fargo Practice Finance is the only practice and commercial real estate lender recommended for members of the American Dental Association.

All financing is subject to credit approval.

Wells Fargo Practice Finance is the only practice and commercial real estate lender recommended for members of the American Dental Association.

All financing is subject to credit approval.

Wells Fargo Practice Finance is the only practice and commercial real estate lender recommended for members of the American Dental Association.

All financing is subject to credit approval.

Wells Fargo Practice Finance is the only practice and commercial real estate lender recommended for members of the American Dental Association.

All financing is subject to credit approval.

Wells Fargo Practice Finance is the only practice and commercial real estate lender recommended for members of the American Dental Association.

All financing is subject to credit approval.

Wells Fargo Practice Finance is the only practice and commercial real estate lender recommended for members of the American Dental Association.

ADA® is a registered trademark of the American Dental Association. ADA Member Advantage is a service mark of the American Dental Association. ADA Member Advantage is a program brought to you by ADA Business Enterprises, Inc., a wholly owned subsidiary of the American Dental Association.

All financing is subject to credit approval.

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