As your lease expiration approaches, it's essential to stay informed and plan strategically. Here are five things to avoid if you have an upcoming expiry of lease agreement:

1. Avoid exercising an option to renew a lease

Option periods are great in a tight market. But in a tenant's market (like we're in now), we generally advise our clients against exercising an option to renew a lease unless they're in a tenant-friendly lease. 

Here's why: 

a) The new rent will be reviewed to 'market'. That can be defined in so many ways, but generally, it means that it will exclude the following:

• Sublease opportunities: These are in abundance now, and tenants generally accept rent discounts of 45-60% compared to their current lease rate.
• Incentives: Depending on property grade and location, new tenants are entitled to 30-55% discounts through incentives. However, if you exercise an option, you're likely waiving your right to an incentive altogether.‍

b) Inflexible lease terms. In a world of uncertainty and with an upper hand in negotiations, incoming tenants can ask for things like early termination clauses, caps on outgoings or no make goods. However, you lose that right when you exercise your option.

c) Options leave you without leverage. The ultimate power in negotiations is the ability to 'walk away' if the price isn't right. However, options dictate the formal and binding arbitration if you can't agree on rent.

TIP: Don't exercise your option. But, in some cases, use an encroaching exercise date as leverage to pressure other landlords to give you the terms you seek.

2. Avoid holding onto redundant fitouts

An office space ratio of 1-to-10sqm is so 2019 ... or is it? 

Now more than ever, the answer depends on your company, your business type, and what issues you want your workspace to solve. 

Employees now know their happy place to work (whether outside in the sunshine or tucked away in a dark space). So, if you want staff back in the office, you must create a space that caters to everyone and introduce technology that facilitates a "hybrid conversation". 

So yes, a flexible workforce may mean you opt for fewer workstations. But to optimise performance, you need to create a space and experience that will bring people and technology together for collaboration.

TIP: Fitout designers offer free 'test-fits'. When you find a space you like, give them your brief and they'll help you visualise it on a floor plan.

3. Avoid seeking advice from landlord representatives

When choosing who should represent your interests in negotiations, be mindful of who you work with.

Commercial real estate agents (i.e. your Managing Agent or Leasing Agent) are required (by law) to get the best deal for the landlord. They'll also usually only show you the properties in their portfolio, which means you only see a selection of available options.

‍Tip: Avoid thinking that a landlord's agent will add value to you. While using one is unlikely to cost you, they won't represent your interests as they work for the landlord.

4. Avoid enquiring through commercial property portals

If you've enquired about leasing opportunities online via the commercial property portals, you might have heard the following from the leasing agent:

 "That property [won't suit you] [is too expensive] [is an old listing] [has just received an offer] [has an uncommercial landlord]…. But I'll send you other options."

This is a common tactic.

Now you're on their database and a qualified target. 

You'll receive various options, sure. But stay aware of the trap you're falling into if you enquire this way.

Remember point three: Leasing agents are required (by law) to represent the landlord's interests, not yours. They'll usually only show you the properties in their portfolio and fight to get the best deal for the owner.

Tip: Keep in mind that these websites are marketing tools for real estate agents. But you can still use them to help you establish market benchmarks and work out the style of building and fit-out you want. 

Sort through the listings and note:

• How much vacancy is there in the building you're looking at? 
• What rents do they charge? 
• What are the facilities of that building? 

5. Avoid not seeking independent advice on how the market has changed

The commercial real estate market is made up of many moving parts. Incentive levels, vacancy rates, and vacancy rates within each landlord's portfolio are all variable factors that will mean the difference between a good deal and a GREAT deal.

If you don't have a constant eye on the market or don't know where to get this information from, you will likely pay more than you need to. 

Remember, you can't trust a landlord's agent to provide accurate information about the market or the landlord (see point three). So, if you're planning to tackle the process on your own, be sure to negotiate on a minimum of three properties (including two relocation sites and a renewal at your existing property). Run each proposal to ground and leverage the strengths of each against your favourite option.

If you play your cards right, the commercial lease incentive offered by your current landlord should be comparable to the incentive provided on your relocation option.

Let's talk. We can help.

Independent tenant representatives are consultants who provide real estate advice to business leaders. We only ever represent tenants, never landlords, and because of that, we get better results, incentives, rates, and more options for tenants.

By using a tenant representation specialist like Tenant CS, you will see the best stock in the market across all agency or independent listings, and our strategy will get you the best negotiation outcome.

Level the playing field by getting an independent commercial real estate expert in your corner.

Have you got an upcoming expiry of your lease agreement? Book a call with our team today to see how we can help you!