Lease negotiation is like a delicate dance between landlords and tenants. One is always trying to lead. There’s a constant circling around terms. And techniques can be graceful (if used appropriately). As with dance, though, it takes practice to improve.
It’s important to master this dance as a commercial real estate professional, though, as lease negotiations have an immediate effect on your bottom line. Whether you’re a seasoned veteran or new to the industry, improving your lease negotiations should be a top priority. This guide covers best practices, mistakes to avoid and how CRE software can help when it comes to your lease negotiations.
Best Practices for Effective Lease Negotiations
With the right “footwork,” anyone can learn to navigate the complex dance of negotiating a lease. Here are some best practices to establish yours as you pursue more effective lease negotiations with your tenants:
- Thorough preparation: The best tactic may start well before the negotiation actually begins. Before you enter into this phase, do your research with market trends, comparable properties and tenant demographics. As we’ll discuss later, commercial real estate software can be a great benefit here and make this step easier. But if you understand the prevailing conditions that will impact your tenant’s decisions, it will help you be more informed about your positioning.
- Clear communication: When you do start talking, effective communication is paramount. Clearly articulate your objectives, concerns and priorities to the opposing party. Your tenant isn’t just concerned about communication during the negotiation—they’re determining how well you’ll communicate throughout the term of their lease. Maintaining open lines of communication fosters transparency and trust, so laying the groundwork for it will make your meeting more successful.
- Focus on value: Seek to identify (and emphasize) the value proposition offered by your property. Highlight unique features. Play up popular amenities. Discuss benefits that differentiate your space from competitors. When you can demonstrate value, it can lead to a better bargaining position and a higher likelihood of the other party accepting more favorable terms.
- Flexibility and creativity: Who says commercial real estate professionals can’t be creative? By crafting terms that accommodate the needs of both parties, it shows your flexibility. If there are any gaps, explore alternative solutions and concessions to bridge them and hopefully reach a mutually satisfactory agreement.
- Focus on strengths: At the end of the day, the best practice to focus on is playing up your strengths, whether they’re property attributes or market insights. The more you demonstrate knowledge—about both the market and the property—the better your position of strength will be, instilling confidence and credibility on your end.
Pitfalls to Avoid with Lease Negotiations
The opposite of a best practice is a pitfall. One or more of these can derail your lease negotiations in a hurry, even if you’ve employed several of the above techniques to gain an advantage. Here are some pitfalls to avoid with your lease negotiations:
- Overlooking lease terms: Failing to review and understand lease terms can lead to unfavorable outcomes. Do a thorough assessment of the lease and make sure you know it like the back of your hand. Scrutinize all clauses and provisions to ensure that your objectives are aligned and you mitigate any potential risks.
- Lack of preparation: Just as preparation is a best practice, not doing so can be a pitfall. Inadequate preparation can undermine your negotiation stance and diminish your ability to get the favorable terms you want. Invest time and effort into researching not just market data, but market dynamics and trends that could impact the environment beyond what the numbers show. Property attributes and tenant requirements are another area where it pays off to prepare.
- Ignoring tenant needs: Ask your tenants about preferences and keep them top of mind as you negotiate and build your lease. Take time to understand their requirements and which ones are most important. Tailor lease terms according to what will accommodate their needs and objectives while still contributing to your goals.
- Rigid negotiation stance: Nothing impedes progress in a lease negotiation like a stubborn participant. Don’t hinder the possibility of a mutually beneficial agreement by adopting a rigid stance. Remain open to compromise and look at alternative solutions to preserve the tenant relationship and reach a productive outcome that satisfies you both.
Leveraging CRE Software to Your Advantage
Lease administration software plays a pivotal role in optimizing lease negotiations. Advanced CRE platforms like Quarem offer a suite of features and functionalities that are designed to enhance it. From lease analysis and financial modeling to document management and collaboration tools, lease accounting software empowers you to efficiently manage negotiations, mitigate risks and maximize value.
If you’re ready to see how Quarem can help with your lease negotiations, request a demo of our software today.
