Knowledge

The time is now approaching, and your lease is coming to an end. What now? The Cayman property team considers five top tips for when a tenant is renewing a commercial lease.

It sounds like time to start considering lease renewal (as an option, at least!). This is the process whereby you and your landlord have fresh talks about the terms of a potential new agreement that would keep you in your property.

If you are interested in remaining in your current premises, you may find these five tips helpful when thinking about renewing your lease.

1.   Assess whether the space is working for you

Ask yourself these questions: What amenities are currently provided under your lease? What further amenities would you like? Are there any physical re-configurations that you would like done? Is the technology infrastructure fit for the systems you want to run? Are there improvements that would make you happier under a renewed lease?

Renewing your lease raises the perfect opportunity to discuss with your landlord exactly what you would like in order to press on with the new lease arrangement. Your landlord just might undergo your suggested renovations, re-configurations and advancements in order to keep you as a tenant.

2.   Re-negotiate your lease terms

In some instances, tenants wait until after signing on the dotted lines to request or negotiate the terms or conditions they want from their landlord. This often proves to be ineffective.

Depending on your landlord's eagerness to keep you as a tenant, you will have increased bargaining power before you agree to renew the lease.

Conduct research on the local commercial market to have a clearer view of the current market rents. Find out what amenities are offered elsewhere. Engage an attorney and ask them to confirm the lease is in line with what is offered in the market.

Use this information to equip yourself with the knowledge needed to go back to your landlord and make some requests or demands.

We would recommend that you start to think about your lease renewal at least 12 to 24 months in advance of the expiry of your lease.

3.   Suggest a break clause

We are living in uncertain times where the need for commercial premises can change and your business being at a particular property can become obsolete. For this reason, you might want to consider a break clause.

A break clause would allow you to end the lease early before its date of expiry if the conditions of the clause are satisfied. This would protect your business from completing a lease term if the need for the premises no longer exists.

There is also a scenario where the premises become unsuitable for your business purpose. A break clause would allow you to terminate the lease without liability for the rent for the remainder of the term of the lease. This in turn gives you a quicker (and less costly) opportunity to find more suitable premises.

4.   Understand your landlord's current situation

If your landlord loses you as a tenant, they face potential losses in the short-term, including immediate loss in rent, renovation costs, advertising costs, etc. Thus, your landlord may be very interested in keeping you as a tenant. This would put you in a great position to negotiate a favourable lease.

Conversely, your landlord may stand to gain more income by losing you as a tenant and leasing to another business. This would all depend on factors such as the state of the market and the location of the premises.

Nonetheless, understanding your landlord's current situation could increase your bargaining power. If your landlord needs you as a tenant, you are in a better position to negotiate a lower rent price.

5.   Hire some help

The first four tips raise a lot of things to consider. We touched on the current market rates and trends, rental negotiations, break clauses, etc.

You (or your company) may not be able to assess all of these on your own. However, there is always the option to enlist a professional services firm that can advise you on the above factors and help you achieve the best deal.

Your landlord may be an expert at these types of commercial negotiations. Thus, you can get ahead by hiring a good broker or agent to assist. That broker or agent would be aware of the market and would be able to help you to leverage that information.

When looking for a broker or agent, find one who understands what you are trying to achieve in your renewal negotiations and who has the knowledge and market awareness to match or exceed your expectations.

Finally, engage an attorney who specialises in commercial lease renewals to navigate you through the process.

Please contact any of the team listed, should you be coming up to a lease renewal. The team are experienced in commercial leasing and lease renewals, having acted for tenants in Camana Bay, Cricket Square and other commercial developments in the Cayman Islands.