Previously in this newsletter, I discussed some of the common mistakes that people make when their lease comes up for renewal. In this issue, I want to touch on some of the reasons that you might actually want to push for early renewal of your lease in order to gain special advantages.

Understanding the needs and motivations of your landlord is the key to assessing when and if to initiate an early renewal. For example, if the owner is looking at refinancing or selling the property, they can be very motivated to have newly signed leases that extend out over more years to show a longer term income stream. Therefore, it is always a good idea to pay attention and keep your ear to the ground on what is happening with your landlord as well as with the surrounding market, especially as you get within a couple of years of the end of your lease term.

Typically, the following conditions should be in place for you to consider pushing for early renewal: 1) more than half way through the current lease term; 2) solid creditworthiness and a good payment track record on your rent.

If you meet the above requirements and if your landlord needs to bulk up their signed lease portfolio, then you’ve got significant leverage to take advantage of the situation. The following are five ways that you can benefit.

1. Reduce your rental rate

If you’re currently paying above the market rate, you’ve got great leverage to drive your rate down to market or even below market rates, by negotiating an early renewal. If you are otherwise satisfied with the existing space and relationship, why not grab the savings by lowering your rate now?

2. Lock in your current rate

Another approach is to use an early lease renewal to lock in an existing low rate. It’s always hard to pin point an exact market bottom but, as I’ve discussed in previous newsletters, some micro-climates in the market are already seeing a tightening of available space that is leading to higher rates. If you are facing the potential of higher rates by the time your current lease ends, then pushing for early renewal can be a good way to lock in your current rate, which can mean significant savings over the entire new lease term.

3. Add space

If your growth plans are going to call for expanded space, leveraging an early lease renewal can be a great way to get landlord concessions such as a low rate on the new space, beneficial tenant improvement allowances, etc. Adding space as part of an early lease renewal offers you even more leverage because the landlord is getting the double benefit of additional years and additional leased-out space.

4. Delete space

Deleting space can be a little trickier because you don’t have quite as much leverage but there are still opportunities to gain benefits with an early lease renewal. In this case especially, it’s important to look at the big picture and not fixate only on the lease rate. By modeling the aggregate costs of carrying less space starting now and running through the new lease term, you can often find significant total savings from early renewal.

5. Reconfigure space

Tenant improvements are always a significant consideration, especially when you need to reconfigure existing space, which can be very expensive and often hard to negotiate if you wait until lease renewal. If you know that you’re going to need remodeling and construction to meet changing business operations, then considering early lease renewal might be just the leverage you need to help pay for those TI costs.

The bottom line is that your willingness to sign an early lease renewal can mean big benefits to you if the landlord needs that longer lease to meet their own business goals. But it’s important to keep in mind that both the benefits to you, such as lower rent, and the leverage with the landlord can diminish as you get closer to the end of your current lease term. So it’s important to take advantage of the timing and to strike while you have maximum leverage.

If you’re within two years of the end of your current lease, now is the time to conduct a comprehensive review of your space requirements and to closely examine your landlord’s needs in order to see if you can benefit from pushing for an early lease renewal.