For most studio owners, rent is one of their largest expenses. The average rent-to-revenue ratio can reach as high as 15% in some cities. While it’s largely a fixed expense, you may be able to renegotiate your lease to save money.
If you are not the hard-nosed haggling kind, there are a few things you can do to prepare for the lease renegotiation conversation. The more prepared you are, the more likely you will be to get the fairest deal possible.
DON’T WAIT UNTIL YOUR LEASE EXPIRES TO START THE RENEGOTIATION
Once your landlord believes you are planning to stay, or you do not have time to move, all negotiation leverage is lost and the landlord is in control.
This’s why it is critical to communicate with your landlord before you get a new lease handed to you. At that point, you are limiting your options because you will have to agree to the terms or move on a fixed timeline. Renegotiating before the end of the lease gives both you and your landlord more time to find a mutually beneficial agreement. Also, if you can start saving a few dollars on rent, sooner is always better than later.
It is also worth mentioning that positioning yourself as an ideal tenant will give you leverage in future lease negotiations. So even if you have a couple years left on your studio’s lease, it wouldn’t hurt to make sure to pay your rent on time and follow the rules of your building. A landlord is more likely to work with a tenant he or she has had a good experience with in order to avoid having to fill the space with a new business.
DO A COMPARISON SHOP FOR COMPARABLE STUDIO SPACES
The more information about the commercial real estate market you have going into negotiations, the more power you have. Knowing what other available and comparable studio spaces are renting for in your neighborhood is helpful in negotiating favorable and fair terms. It also helps you feel confident that you got a good deal.
Do not use the landlord’s broker. You may want to get an outside broker involved in your lease transactions. The fact is, many times lease renewal terms offered to existing tenants are often less advantageous as lease terms offered to new tenants. A neutral broker can provide that type of information to you. If you are told that you will avoid paying a broker fee if you use your landlord’s broker, be wary.
ASK FOR MORE, NOT LESS
If you do all the research and find that you are already getting your studio space for a steal, consider making requests that will add more value to the price per square foot. For example, are there any repairs or upgrades you feel your studio needs? Capital improvements can be a win-win for both you and your landlord. Can you request a few parking spots designated for your clients’ use? If you are thinking about expanding your studio with more classrooms or want to add better locker rooms, you can ask your landlord for more square footage and a lower rate than you are currently paying. Another way to get value is to ask for a free month for resigning your current lease. Get creative with your requests and find ways that your landlord can help improve your customer experience.
DISCUSS YOUR LEASE EXTENSION OPTIONS
The benefit of a long-term lease is that you will lock in your rent for a longer time period and reduce the times a landlord can raise your rent. However, a long-term lease can lock you into a space, making it more difficult to expand or move. If your studio is growing, but you are not quite ready to commit to a long-term lease at your current location, ask for lease-extension options to be incorporated into your next lease. This will give you the option to extend your current lease for three or five years if you choose to stay.
MITIGATE MID-LEASE INCREASES
Your landlords can seek the right to raise your rent if there are changes in real estate taxes, energy costs and more. While you may not be able to rule out increases as a result of real estate taxes, you can ask to have any other periodic increases out of your new lease.
No matter how good your relationship is with your landlord, you are both running businesses and want to maximize your own profits. Keep your negotiation friendly, without getting emotional, and that will help ensure you come to a fair deal.