Six ways to create leverage in lease negotiations

Last updated:
Jul 4, 2023
Commercial Real Estate


Hannah Feltham
Hannah Feltham

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Even in a tenant's market, many businesses are still negotiating poor leases because they:

  • Aren't across the options available to them
  • Don't possess the proper market knowledge or experience
  • Only have to negotiate a lease once every 3-to-5 years
  • Have no one advocating on their behalf

Landlords also have the upper hand because they have skilled commercial real estate agents working for them who negotiate on their behalf and fight for their best interests.

Here are six ways to help increase your leverage in negotiations and level the playing field:

1. Allow yourself enough time

One of the best things a commercial tenant can do to aid their lease negotiation is to get started early. 

Even in a tenant's market (like we're in now), it still takes time to source a great relocation option or renegotiate your lease well. It's best to start your project early to:

  • Give you the time to undertake your workplace strategy and gauge your true property requirements.
  • Ensure impending deadlines don't work against you in negotiations.
  • Give you breathing space to engage in a Stay v.s Go strategy (see next point) to talk to your existing landlord and the market simultaneously and improve your negotiation outcome.

The amount of time you need depends on several variables, like your business and the market conditions. However, as a rule of thumb, leave at least one year's grace unless you're a larger occupier (i.e. an industrial tenant or global company with lengthy approval processes). In this case, give yourself more time. 

2. Create competition 

Even if you have your heart set on lease renewal, it's important to canvass the market for relocation options. This will ensure:

  • You have a backup option. 
  • You get across market benchmarks for comparable space.
  • You improve your lease renewal leverage (if your landlord knows you're looking at other options on the market, they'll be more willing to negotiate on asking rate, flexible lease terms, incentives or tenant-centric clauses to retain you as a tenant).
  • You create competitive tension between landlords and agents, which results in the best outcomes.

Once you've done that, hit the negotiations. Submit proposals to your current landlord and the landlords of alternative properties. And remember, don't make any decisions until you have negotiated the best deal on all your options and analysed costs and potential savings.

Tenant tip: you never know, you might find your dream space and deal where you least expect it. So, explore all options thoroughly and keep an open mind.

3. Document everything

Creating a solid paper trail for your negotiations aids clarity, reinforces accountability and allows you to record any agreements you make. At a minimum, ensure to document:

  • Requests for proposals (RFPs) - Putting these requests in writing avoids misunderstandings and ensures that both parties are aligned on your needs and objectives.
  • Responses to RFPs - By documenting initial landlord or agent responses, you can compare different offers and make informed decisions. Having written evidence also helps avoid confusion and provides a basis for further negotiation.
  • Amendments - As negotiations progress, it's common for adjustments to be made to the landlord's initial response. Documenting these amendments means that what's been agreed upon is accurately captured and can avoid any disputes arising from miscommunication.
  • Letter of Offer (LOO) or Heads of Agreement (HoA) - Once you're happy with the terms, formalise what's been negotiated in a written document that outlines the key terms and conditions. This will act as a preliminary agreement before lease execution. 

Tenant tip:  Never trust what you're being told verbally (even from your existing landlord). Nothing is worth anything unless it's in writing.

4. Get to know landlord motivators

While securing a commercial lease is mainly about meeting your business needs, gaining insight into the landlord's motivations can help increase your leverage in negotiations. Here's why:

  • Negotiation power - knowing the landlord's motivations gives you power in negotiations. If you understand their goals and priorities, you can align your requests in a way that appeals to their interests. 
  • Finding common ground - understanding a landlord's position allows you to identify potential areas of agreement and common ground. 
  • Avoiding misunderstandings - miscommunications or misunderstandings during lease negotiations can lead to complications. So, by understanding your landlord's motivations, you can anticipate their expectations and potential areas of contention. 
  • Relationship building - successful negotiations are not just about securing favourable terms; they also lay the foundation for a positive ongoing relationship with the landlord. 

5. Consider that there's more than rent and incentives to negotiate

When it comes to lease negotiation, some obvious terms need to be ironed out, such as rent, lease duration, renewal options and permitted usage.

However, what many commercial tenants may be unaware of is that virtually every clause in a commercial lease is open to negotiation. In fact, a standard lease contains more than 40 negotiation points that, if overlooked, can spark problems because they're written by the landlord in their interest. For example, we recently came across an auto-renewal clause in a lease which stipulated that, if the tenant did not give six months' notice to vacate before lease expiry, their lease would automatically renew.

6. Get a tenant rep to act on your behalf

Most landlords enter negotiations knowing they have an advantage because they have an agent negotiating on their behalf who has strong knowledge of the building, market expertise and robust strategies.

So, if you don't have a rep on your side and aren't an expert negotiator in commercial real estate, you'll be at a disadvantage in negotiations. 

The bottom line - if they're repped, why shouldn't you be?

The team at Tenant CS are consultants who provide real estate advice to commercial tenants. We negotiate on your behalf, securing savings, best-fit premises and favourable lease terms. Because of this, you'll see the best stock in the market (across all agencies), and our strategy will get you the best negotiation outcome for your business.

Level the playing field by getting Tenant CS in your corner. Book your obligation-free discovery call today.

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