What’s involved in a Lease Renewal?
At least 18 months out from the expiration of your existing lease you should be considering whether you will be seeking a lease renewal or possibly relocating. Allowing plenty of time is important to weigh up the options available to you and allow you to make well informed decisions, rather than hastily made ones.
When a lease is due to expire you can vacate the site if you no longer require it; exercise your option for a further lease term if available under your lease; or negotiate a lease extension/new lease with the landlord potentially with different terms and conditions.
- Vacate the site. If the property no longer fits the needs of your business or you instead relocate to a different site, be sure to provide the Landlord with adequate notice of your intent to vacate and that you will not be seeking a lease renewal. You will also be required to make good the property, so ensure the cost of doing so is factored in. There can be significant costs involved in bringing the premises back to a condition as required under the lease terms. You can read more about vacating a property here.
- Exercise your option. If you have further terms available under your existing lease, this is usually the most straight forward way to renew your lease. Options are favourable to the tenant, and the Landlord must honour the further terms, if you meet all the conditions noted under the lease and have not been in breach of your lease during the term. Along with knowing the time frame with which you have to exercise the option, you also need to fully understand what the conditions are for exercising the option, which includes the rent review method. If there is a ratchet clause on the rent review and you exercise your option, the rent will not be able to reduce even if market rent is well below what you are paying. The available lease term may also be much longer or shorter than you would like. If the option is not favourable, you should consider negotiating new lease terms with the Landlord.
- Holding over extension – Some leases will allow for you to hold over after your lease expires. This generally allows for a month to month extension with either party being able to provide one month’s notice to vacate. This can be of benefit to you if you are unable to enter into a long term lease until you receive confirmation of client contracts or board approval in the future. Remember that the Landlord can provide you with one month’s notice to vacate and the lease may state that the rent can increase during a hold over period.
- Negotiate a new lease/ variation to existing lease. This is usually done by way of a Deed of Extension and Variation to Lease, which will outline the terms which have changed from your existing lease. If you intend to negotiate a new lease with the Landlord, make sure this is done well in advance of your lease expiry so that you are not pressured into agreeing to terms and conditions that you shouldn’t
If there are no options and you want to stay, start discussions early as possible as if you leave it until the last minute the Landlord can increase the rent as much as they want and you won’t have the ability to find something else in time without major business disruptions. This is often where businesses find themselves paying above market rates. If you start considering your options early the Landlord will get nervous that they will potentially have a vacant building and may be inclined to offer more favourable terms to keep you in the premises. Before you contact the Landlord to commence discussions around new lease terms, make sure you’ve done you’re homework. Get an idea of current market rents in the area and also what the vacancy rate is like by engaging a tenant representative (such as ourselves). If there are plenty of other vacant buildings in the area this will work in your favour.
Need help negotiating a lease renewal? We’re the commercial leasing experts so contact us today to discuss how we can help you – 1300 266 341 or firstname.lastname@example.org