Lease renewal windows give your business a valuable opportunity to double down on successful locations and pull the plug on sites that didn’t pan out. It’s also a chance to renegotiate for more favorable terms and secure the lowest rent charges.
But there are plenty of pitfalls you’ll want to avoid in this process. If you’re not careful, you can wind up paying a lot more than you have to—or committing to a location you should’ve abandoned.
Real estate transaction management requires you to see the big picture and consider the opportunity cost of every choice. So let’s look at what you can do to get lease renewals right.
A few key activities can turn lease renewals from mistakes to opportunities. Whether you’re looking at your first lease renewal decisions, or your company has an extensive real estate portfolio with a long history, you’ll want to make sure you’re doing these things.
Monitor your lease renewal schedules automatically
First things first: if you miss your lease renewal window, you’ll lose leverage for negotiations and will likely pay a lot more just to stay in the same location. It’s not uncommon for retailers to be stuck paying $100,000 more in additional rent payments for missing a renewal window. Worse, missing this crucial deadline can even lead to eviction, which can mean losing millions of dollars in revenue.
When you have hundreds or thousands of leases, each with their own renewal clauses, it’s all too easy for these dates to fall through the cracks. The larger your portfolio, the harder it is to monitor renewal windows manually. But surprisingly, many retailers still try to do it, bogging down their lease administrators with an overwhelming number of individual schedules.
With lease administration software like Tango Lease, you can automate this tedious process, removing the opportunity for this common human error to add six figures to your operating costs. Tango Lease’s Critical Dates feature combs through your leases for every important date, then automatically generates and monitors detailed lease schedules. As renewal windows approach, your lease department can easily see them coming and receive timely alerts, so you’ll never be caught off guard by deadlines to renew.
Lease administration software can monitor your leases and alert you when you’re entering a renewal period. But then what?
Lease renewals afford you the opportunity to evaluate if you made the right call by choosing the site the first time.
Is it still profitable? Did its actual performance align with your projections? Have you maxed out the opportunity, or is there room for growth? Are there newer or better sites nearby?
Lease renewals and site selection go hand-in-hand. You don’t want to lock yourself into another 5–10 year lease for the same location if there are better opportunities available to you. Make sure your lease renewal decisions are made with the same level of intentionality and research brought to your original site selection process.
A key part of re-evaluating your current location is creating a new sales forecast. During site selection, your models leaned on your ability to find comparable sites and apply demographic and customer data. Now you have something to add to the formula: several years of sales figures from the site itself.
The process is still speculative, but it’s rooted in historical data. With a solid site model and the right site selection criteria, you can accurately forecast what you can expect from the next lease period.
While it’s tempting to only use your historical data, treating your current location more like a potential site will help you see how trends in the trade area might impact future performance. You don’t want to assume sales trends will continue if the factors that influence sales are changing.
Perhaps there’s a new major point of interest being built on the other side of town. Or local demographics are changing substantially. Maybe the school that generates the majority of your lunch hour business is relocating.
Don’t let assumptions lock you into renewing a bad lease.
In the time since you first signed your lease, your lease portfolio has likely changed. You might have many more leases with the same landlord now.
Are the terms the same? Are there clauses the landlord agreed to on another lease that you could bring to this one? Are they putting you on the hook for CAM charges they’ve been responsible for on your other leases? Or you may have more comparable sites than you did before.
Those comparisons could give you valuable leverage to get the terms you want.
Ultimately, the key to lease renewals is to be ready to negotiate. You need to stay on top of dates and do your research into the location’s potential and your lease portfolio, so you know what terms and outcomes you want before the renewal process gets underway.