I enjoyed reading Kelly Macsymic’s tips for renewing a commercial lease.
Overall, I agree with her approach, and I would like to add my own perspective from a property manager’s (and therefore a landlord’s) point-of-view.
As Ms. Macsymic noted, typically, after tenants have signed their first lease, they file it away and forget about it. The renewal date should be tracked – and proactive property managers and landlords have software programs that do just that. The programs alert them to upcoming lease renewals, and provide information that includes the expiry date of the lease, current lease rate per square foot, payment history of the tenant, and any other notes that could be relevant to the renewal.
Landlords should begin negotiating with their tenants no later than six months before the lease expiry date. The first step is to determine if the tenant has an option to renew, and if they intend to exercise that option. If the tenant has missed the date to exercise their option, the landlord can still choose to negotiate the renewal, but they would not be obligated to renew. When considering the desirability of a tenant, the landlord should consider their payment history, their overall record and how they maintain their premises. One issue that we’re seeing more of lately is whether the business operations of the tenant affect the insurability of the building.
We have also seen changes to the Real Estate Services Act in B.C. in recent years and “dual agency” – a single agent representing both parties in a real estate transaction – is no longer allowed. Tenants must be advised of their right to be represented in a leasing transaction, and further advised of the risks of not being represented. The question now becomes, “Who pays the leasing agent commission?” Historically, the landlord paid the agent’s commission because the agent was also representing the landlord. We have seen lately that should the tenant choose to seek representation, the tenant pays for that representation, not the landlord.
Property managers are in unique position to assist landlords in the renewal process. After dealing with the tenant during their previous lease, they should have a good understanding of their operations and their approach to business in general – they may have useful advice on what to include in negotiations, and where the landlord can negotiate to their advantage. A property manager can also serve as a buffer between the landlord and the tenant, and remove any emotion that can arise as a result of the negotiation. At the end of the day – and especially during the past year – landlords are looking to build long-term relationships with their tenants that work for both the tenant and the landlord.
Rod Fram is the president and owner of B.C.-based Transpacific Realty Advisors, a full-service commercial and residential rental property management company.