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<b><i>In The Spotlight: </b></i>Strategies in Tenant Office Lease Renewal Negotiations

BY Doug Damron
July 30, 2008

As tenants reconsider and update office space needs, it is imperative that they proactively develop a strong renewal/relocation negotiation strategy to maximize their future rights and benefits. Tenants with expiring leases are often faced with enormous improvement costs; concerns about productivity loss; aversion to change; lack of market knowledge/leverage; and unknown out-of-pocket costs of a relocation or renovation of space. Furthermore, as they are considering what space is right for their future, they face serious concerns over planning for what could be a five- or ten-year financial commitment. Unfortunately, many tenants wait too long to focus on space needs and assume their lease will be renewed on reasonable terms. If a tenant waits until its notice period is upon it before it assesses its needs and develops a strategy or looks at the renewal rights in its current lease, it may become a 'captive tenant' forced to negotiate from a weakened position in the market.

Tenants need to avoid the captive tenant syndrome by considering a real estate strategy well in advance of their lease expiration. Hiring a tenant broker and focusing on possible leverage with a landlord is the best strategy in defense of becoming a captive tenant. Landlords are concerned with lease-up time, high tenant improvement costs, credit risk, their ability to refinance and any impact on liquidity that results in losing a tenant in their buildings. A tenant's ability to leverage these concerns effectively in a negotiating strategy will benefit them financially as well as mitigate future risk. Below are four essential considerations for companies tackling a real estate renewal.

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