Things to consider when it’s almost time for lease renewal
If your lease is coming to an end soon, there are some important things you need to consider.
- Do you have any options?
- Do you understand market rent?
- Is it time to relocate?
- Do you have a plan B?
Have a think about your business’s next movements at least 18 months prior to your lease ceasing. Will you change locations? Or will you renew your lease? Or could you negotiate the lease on better terms? Take your time in assessing what is best for you and your business. Consider assessing your options early and the landlord will likely work harder to cooperate with you to avoid a vacant property.
We have listed the various options and some suggestions on how to go about each:
If this space is no longer meeting your needs, you should consider vacating.
Always consider other options such as relocating to a smaller space to fit your budget or possibly returning part of the premises to the Landlord (if the set up allows for this). You need to give your landlord a good amount of notice that you no longer wish to be in this space and that you will be moving on. In a commercial property, you will be required to ‘yield up’ at the end of a tenancy. Depending on your lease, you may have to return the property back to the way you first found it, often including any additions you have made to it. Make sure to have a good read over the requirements in your lease, as each agreement can be different. You don’t want to end up having to pay significant amounts out for works that you don’t have to.
Do you have any lease options?
If yes, what is the length of the option lease and is this suitable for your requirements? Lease options are for the benefit of the Tenant and allows you the opportunity to secure your occupation for a further period of time at your discretion. Ensure you take note of the date by which you must exercise the option and the method of review.
Do you know what market rent is?
I can’t stress to you how important it is to know what market rent is for your property. You can’t always assume that the rent the Landlord is asking for is fair or market. Do your research and find out what similar properties have leased for and if they were offered any incentives. If you are a Tenant under the Retail Leases Act in Victoria or your lease agreement allows, your rent can potentially reduce at a market rent review, so it is crucial that you have this information at hand before you negotiate.
Do you have a backup plan in case things don’t work out how you want them to?
If negotiations are prolonged and your lease expires, it puts you in a vulnerable position whereby your Landlord may give you notice to vacate the property (usually with only one months notice). Commence negotiations on your lease renewal as early as you can and consider what you will do if the negotiations don’t work out as you had hoped. This can include alternative properties that you could lease or maybe other terms that you could agree to in order to secure the lease, for example a five-year lease instead of three.
When the time comes to negotiate, make sure you have done your research and understand the market in your area.