All lease and sale negotiations can be characterized as a dance of sorts. An offer is written, a counter is submitted. Both parties angle to achieve the best results for themselves. There is give, there is take. It’s not over till the music stops, proverbially speaking.
One of the more underestimated dances, however, is the renewal interaction. From our experience, both Landlords and Tenants can benefit from some advice in this category.
Get informed, Landlords
For Landlords, it’s important to recognize the value of your real estate and make sure you are collecting a market rate for your product. In the Saskatoon Real Estate community the cap rate return on your investment can vary between the office, retail, industrial and multi-family sectors.
This is where an agent can be a valuable asset. He or she knows the market as it is today; not necessarily what it was 5-10 years ago when you purchased or started putting your current leases in place.
Most leases will provide wording that allows Landlords to seek the market value upon renewals. Your agent will have the most recent comparables for the area and advice on how to approach presenting the renewal.
Protect yourselves, Tenants
For Tenants, agents should be preparing them in advance of signing their leases that future renewals are not “locked’ into a rate. Some leases will provide for the renewal rate to be stated, but most Landlords want the opportunity to take their chances and see where the market heads.
The most important first step Tenants need to make in the renewal process is notifying the Landlord by the notice date listed in their option to renew. This starts both parties out on a level playing field and gets the discussions rolling. Most options will have a time period identified for completion, which is beneficial for all parties involved so as to not drag things out.
Let’s reach an agreement
In most case, our Saskatchewan real estate markets have slowly increased, which could be said generally across all our sectors. Demand continues to drive leasing activity and vacancy rates are still below national averages.
This does not mean a Tenant can’t have a say in the renewal process. If an option to renew is triggered, the same wording that allows a Landlord to seek market rent also limits them to what the area is leasing for.
For example, the Landlord cannot simply come in and double the rate is all evidence in the market is pointing towards a more reasonable bump. The standard lease ICR Commercial Real Estate will force an arbitration if there is major discrepancy between both parties.
A renewal is not something to be taken lightly by either side and getting the most accurate market research is crucial to coming up with a fair renewal agreement acceptable by both the Landlord and Tenant.
Posted by Kelly Macsymic
