How To Improve Your Lease Renewal Strategy
The most valuable thing to a commercial property investor is a long term tenant.
Every time your tenants decide to move on and not renew your lease, it costs you money. There’s the changeover costs, advertising, potential maintenance costs, costs of incentives to attract a new tenant, and not to mention the potentially months of unpaid rent that goes buy as you try to find the right tenant replacement.
So what can commercial property owners do to improve their lease renewals and keep their tenants?
Here’s some key considerations.
Communication is key
Though communication may seem simple, there’s a few things to think about.
Communicate clearly with your tenants from day one and make their lease enjoyable and easy. Let them air their grievances and come to compromises with them, where possible. Making them feel as though you’re unreachable makes them far less likely to want to hang around. Likewise, staying in contact makes urgent needs or necessary repairs transparent, so that you can plan ahead and budget accordingly.
Touch base often, and be proactive. Ask how the tenancy is going, and even further, ask how business is doing - this will, of course, impact the tenancy. Don’t make it feel like you only care when the renewal date is approaching.
Give lengthy notice. If you’re keeping in contact, it’s likely that tenants know when these dates are coming up, but it’s imperative to give them a formal lease renewal request and provide the associated terms and market rent review for their lease extension. Typically the timing in which this is to be done is outlined within the Lease. This allows them to prepare and consider their options.
Get the timing of the lease agreement right
Lease agreements are critical to success in commercial property. When you’re writing your agreement, make sure you think ahead. On this, there are two main points:
Ask for sufficient notice period if your tenant wants to move on. Make this specific and clear in the lease agreement because long notice times are good for everyone. It gives tenants clear boundaries, and as a landlord, it gives you adequate time to prepare and budget for the future.
Set dates in your lease agreement that line up with the market. Ideally, you want the renewal discussions to be taking place when the property market is competitive and there is more incentive for the tenant to stay, rather than fight for properties in the market when there are known vacancies on the horizon.
Always look for ways to improve
This is an obvious one, but often overlooked by commercial property owners. Continue to invest in your tenant relationship as well as the property itself, and do your best to support the evolving needs of your tenant.
Consider renewing tenants at the same rate or provide a fair and reasonable incentive, rather than upping costs. If they choose to move out because of the increased rate, it’ll cost you more in the long run than if you had just maintained what they were already paying. Or if you have to increase rent, communicate why, and make sure you demonstrate the added value.
Make improvements to your property wherever possible. Keep up to date with repairs and add in capital improvements wherever you can. It’s hard to overcapitalise here, because spending more on your property, and spending on the right things, is not only going to keep your tenant happy, it will also increase the value of the property.
If you go with the cheap option and keep upping the rent without investing, you’re going to get hit with the vacancy costs as your tenants turn over.
It is essential for commercial property owners to get advice about their lease renewal approach from an experienced property adviser. It’s an investment that is sure to pay off.
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Managing Director, Broadway Property
Director, Broadway Property