If you were to poll a random group of commercial tenants from a variety of markets around the country and ask them what drove their real estate decisions, my guess would be that most would respond with their lease expiration date. After making more than 15,000 cold calls in my career, I can tell you that whenever someone wants to push me off, they say it’s because their office lease doesn’t expire “for a while.” That might be fine for some because business is status quo. But for many, a lease expiration is only a date that was determined when you signed your lease, nothing more.
Let Your Business Determine Your Real Estate
Imagine you have three years left on your lease. Your space is only big enough to accommodate 25 people. You’ve just hired employee number 23 and you expect that in the next six to nine months, you’re going to exceed your limit of 25. The last thing you’d want to do is ignore the need for more space just because you have three years left on your lease.
Just this year a client called me to say that they needed more space but had two and a half years left on their lease. I happened to know that the tenant next door in a smaller suite also needed more space. I arranged for my client to terminate their lease early, without penalty, providing the adjacent tenant signed a lease for my client’s bigger space. Even though both tenants had several years on their leases, all parties, including the landlord, were able to make arrangements to accommodate everyone’s requirements. My client moved into a bigger space in a more desirable market, well in advance of their lease expiration. The adjacent tenant was able to expand into a bigger space early. And although the landlord is left with a vacancy, he secured a long-term lease with one tenant, when he likely would’ve lost both if he weren’t able to accommodate one.
Market Conditions Can Be A Driving Factor
For this scenario, imagine again you have three years left on your lease. Your rent has exceeded market rates while vacancy has ticked up. You feel like you’re in a tricky position because you’re stuck paying too much for three more years. What to do?
Although this is more common in a down market, you can always approach your landlord and offer an early lease extension in lieu of an early rent reduction. Why would they accommodate this request? To secure a longer lease. A smart landlord knows that an unhappy tenant can lead to a vacancy.
While not all situations are the same, it’s wise for a landlord to provide some early relief; otherwise, if the tenant were to move out, there would likely be an extended period of time where the suite would stay empty and, more often than not, the landlord will have to pay more in construction for a new tenant’s build-out. All in all, the reduction in rent is an easy pill to swallow compared to the alternative of losing the tenant.
You’re Swimming In Space
Let’s keep the three-year train rolling here. Let’s assume you have three years left on your lease and you really only need half the space. If you’re not able to shed the extra 50%, it could mean that you’ll have to close your doors for good. I’ve got great news: You can probably sublease your space. Yes, that means you’ll have to rent it at a discount and yes, you’ll pay a brokerage fee, but if you can successfully fill 100% of the space, you’ll cover most of your obligation, find new, more efficient space and live to fight another day.
Most leases give tenants the ability to sublease their space. In many cases, you can also assign your lease whereby the new tenant essentially takes control of your lease so you can terminate the lease and walk away. Subleasing isn’t a guarantee, but it gives you a good chance, if done right, to move on to greener pastures.
Partner Up For The Best Results
Your absolute best-case scenario for each of these instances is to hire a real estate broker. This isn’t me just trying to make a living — tenants must know that real estate brokers, without the shadow of a doubt, are extremely valuable to the success of your business. Not because we’re going to sell your product or service (although we can advocate like crazy for you), but because we have unique skills and knowledge of the market that provide your business the flexibility to grow (or contract) as needed without fear of repercussions to your business. Partnering with a commercial broker can keep you from being at the mercy of your lease expiration date.