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3 reasons for a business to renegotiate its commercial lease

On Behalf of | Sep 13, 2023 | Commercial Real Estate |

A commercial lease is a long-term contract that binds a business as a commercial tenant to a specific property. The landlord agrees to provide certain amenities, ranging from facility maintenance to parking spaces, while the tenant accepts certain restrictions on its operations and agrees to pay a specific amount of rent each month. There may also be secondary charges outlined for maintenance fees, utilities, etc. in some cases.

Typically, tenants and landlords are in a position to renegotiate a commercial lease once it is up for renewal after a few years. However, there are times when a lease no longer properly meets the needs of all parties and they can benefit from lease renegotiation long before the end of an initial lease’s term. The following are some of the more common reasons that commercial tenants seek to renegotiate a lease with their landlord.

The business needs need to expand or move

Business success will often mean that a company outgrows its commercial space. If an organization wants to move into a larger facility to increase production capabilities or a more profitable neighborhood to get closer to its target customer base, it may want to end if lease early or possibly negotiate a lease for the empty adjacent unit that could serve as additional space for their thriving company.

The business has encountered hardship

Perhaps there have been contractions in the local market that mean a business’s sales have shrunk recently. Maybe a new competitor has undermined the company’s market share. When a previously successful business has found itself struggling to pay rent and other expenses, it may be necessary to negotiate with the landlord to avoid eviction or possibly secure some concessions, like a reduction in rent or a decrease in the duration of the lease. Landlords are often eager to work with tenants to keep them in a unit whenever possible, is that will be a lower-cost option when compared with marketing to secure new tenants.

The facilities require adjustments

Perhaps the company has reached a point where it needs specialized equipment, which would require a bigger or more open space. Maybe it is the age of the facilities that makes maintenance or repairs necessary, as the business can’t absorb the risk of a leaky roof or other challenges generated by aging or deteriorating physical premises. Discussing the need for repairs and the costs of such repairs with the landlord could lead to mutually beneficial arrangements or may allow a tenant to leave before the technical end of the lease so that the landlord can avoid those expenses.

The specific terms set in a commercial lease document can have a major impact on a company’s budget and operations for multiple years. Seeking legal guidance when entering or renegotiating a lease can help a business executive secure favorable terms and minimize the risk involved in securing commercial premises.