Most tenants sign a lease for longer than three years. There are times when the space they initially leased no longer fits their needs two years into a five year lease. The question becomes whether the landlord would be willing to change the lease to accommodate the tenant’s needs. The answer will be dependent on the terms of the lease, the change in space and the landlord’s position on those changes.
Here are some questions a landlord will ask before making a decision:
• How much lease term is left on the existing lease?
• How much unamortized tenant finish costs remain?
• How does the lease rental rate compare to today’s building rental rate?
• How much space is tenant requesting to expand in to or give back?
• If I don’t assist the tenant then will I lose the tenant at the end of the lease term?
Here are some questions a tenant needs to address before approaching the landlord:
• What are the current space needs versus the actual space leased?
• Do the existing leasing terms address the issue of expansion or downsize?
• Is tenant willing to extend the lease term?
• How does the lease rental rate compare to today’s building rental rate?
• Does the building amenities & location satisfy tenant’s long term needs?
• Is tenant willing to take on the headaches of moving to new space?
• Is tenant willing to have disturbances in their existing space if it were to change sizes?
• How dire is the need to change space?
• Can you make it work until the end of the lease term is closer to have more leverage in negotiations?
Why would a landlord consider downsizing a tenant’s space?
A 25,000 square foot tenant paying $18.00 per square foot in rental rate with three years left on their lease could renegotiate their square footage to 20,000 square feet and the landlord could achieve an aggregate increased value of $250,000. The tenant would actually have a savings of approximately $200,000 over the restructured lease term. Tenant would have to increase their rental rate to $18.86 per square foot but would reduce the square footage by 5,000 square feet. LeaseWithEase can assist companies in reducing their current square footage obligation and still achieve savings for the company.
The basis of this renegotiating is on the potential “down-time” at lease expiration, tenant improvements, and the landlord’s position in the real estate. Landlords will be more willing to accept a reduction of space in a down market. Most landlords will consider this when there is less than three years left on the lease. Being able to quantify the amount of money the landlord could save by changing the size of the space is crucial. LeaseWithEase can assist you in your negotiations for changing space requirements in the middle of your lease.
About LeaseWithEase
LeaseWithEase empowers tenants to make their own leasing decisions and can save a tenant 10% to 20% on their next lease negotiation. LeaseWithEase is similar to Lending Tree, Travelocity and E*Trade in that we provide free data and tools that were previously only available to the professionals. LeaseWithEase was built for tenants wanting to make their own leasing decision and at no cost to the tenant.
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Note: Each state and each market will differ from other states and markets. It is advisable to ask a real estate professional any questions you might have about a leasing commercial space. The above article used general terms which could apply to your state or not. LeaseWithEase provides free consulting to our clients who use our free website to find their office, retail or medical office space.
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