By John Jarvis
Information is power, and the other side has more than you
Most businesses don’t relocate every time their lease is expiring. As a result, lease renewals are far more common than lease relocations. Unfortunately, your landlord knows this firsthand. I sometimes say, “Nine times out of 10, businesses don’t want to relocate, and 10 times out of 10, the landlord knows this.” Which can make for challenging negotiations when a business seeks to renew an existing lease. I wrote about this previously, and about the premium rents landlords try to extract on renewals, and I gave it a name, the “Lease Renewal Loyalty Premium.” This article is about an important additional detail: As a business owner, you make things dramatically worse with a single decision—when you decide to go it alone.
What do you do when you want to relocate your business? You almost certainly hire a broker. They know the market; they can find the buildings and drive a competitive process to identify and negotiate for the best possible outcome. That’s what good brokers do. But hey, if you’re not looking to relocate, then what do you need a broker for? You like your building and you like your landlord. You don’t need to see other buildings; you just need to negotiate a fair contract extension. You’re an excellent negotiator. You negotiate contracts every day. What’s more, with AI as a tool, now you can research the market, find your own comps to understand what others have paid and where market pricing is today.
If only it were that simple. But knowing a few recent comps and getting there (or better) with your current landlord do not go hand in hand. To borrow a phrase from my adventuring days, the map is not the territory. Knowing where you want to go and getting there are two very different things. And here’s the problem: When you approach your landlord directly, you’ve made it crystal clear that you are not looking at competing buildings because you haven’t hired a broker to scout out those locations. You’ve telegraphed your punch and confirmed what the landlord already suspected, that this is a renewal, and that they are not going to need to compete with the open market in order to keep you in the building paying rent.
Just how far will landlords go in order to enjoy occupied buildings with rent checks coming in? They will go as far as they need to go, every time. And if they don’t need to stretch in order to keep you in the building, then they won’t stretch. Why would they? It seems crazy to think that the single action of hiring a broker can shift the game so entirely. And it does. Every time. When you telegraph your punch and engage directly with your landlord in negotiations to renew an existing lease, it’s like you are trying to bluff while playing poker with your cards face up, against a professional poker player. In my opinion, this is not a recipe for riches.
There’s a better way. Don’t telegraph your punch. Don’t go it alone, even and especially when you’re certain you’re staying. And definitely do not try to bluff when all your cards are face up.
