Craig: Today I want to talk about lease renewals. Some of these things sound boring at first, but if it puts a lot of money in your pocket that you can bring home and out food on the table and kids thru school, that’s not boring. I know I have a lot of good things to spend my money on!
Natalie: I have time to talk about money!
C: Well there you go! Basically that’s what all these episodes are about – money in your pocket.
Here’s the thing, when you have a lease and then you have a renewal, you have the option to extend and stay longer. Many times that’s with a fixed rate and it’s amazing how many tenants, when it comes time to renew, will just send letter to the landlord that says, “We hereby exercise our option to renew our lease, remaining for the terms of our lease.”
Here’s the point, lease renewals are negotiable events. So, if your rental rate for instance, especially if it’s higher than market then you just want to throw it right out the window and say “We’re not going to do this, but here’s what we will do.” Now if you really want to stay again as I’ve mentioned in previous podcasts, we’re not fibbing when we say, “Staying is one of our options.” Now, maybe between you and me, we really want to stay, but technically it is one of our options, one of many we’re considering because other landlords will give us other incentives to go other places. Maybe we could actually use a little more space. We could use a less space.
So, a lease renewal is pretty one-sided actually and landlords would prefer not to give the lease renewal because it’s only in their worst interest. If the lease renewal is not to the tenant’s advantage they’ll throw it right out the window, but if it is to the tenant’s advantage they’ll take it. This is typical if the market rental rates have gone up over the term of the original lease and now you’re getting a sweet deal. You’re probably just going to take it.
So, typical of a lease renewal would be to say “Well, you know we could stay but it’s looking a little shabby in here. How about we get some new paint, new carpet, that HVAC, you know the air conditioning has been making a lot of noise why don’t you put one of those in for us.” You know you negotiate these things and you can do what used to be called the Extend and Blend. I’ve been at this long enough. I’ve seen markets where they’re really a tenant’s market. You can get whatever you want. And, then in a landlord’s market you have to beg for the space and an Extend and Blend would be when you go to the landlord early. For example, let’s say you have a 5 year lease and you’re 3 years into it; you can renegotiate the lease at any time and say, “I’ll tell you what landlord, you can extend our lease longer under these following terms.” It could work for both parties. It just depends what you need, what your circumstances are.
So, we can discuss other nuances of leases in the future episodes but the point of my story here is that lease renewals are negotiable events. You’re practically foolish if you just send a letter that says “We hereby exercise our option to renew” and you miss the chance to ask for incentives. That’s a shame.