Commercial lease renewals
Here is a quick summary for understanding commercial lease renewals for office space, warehouse space and retail space. What is a commercial lease renewal? A renewal is a provision in the lease document that allows the tenant to extend their commercial office, warehouse or retail lease. The renewal is set up with predetermined terms. Believe it or not inflation does factor into a commercial lease. As an example after 10 years of 13% inflation a lease rate of $1000 would only be worth $290 , this is great news for the tenant of the commercial lease. This would lower the value of the property owned by the landlord. Typically a renewal is going to mirror your original commercial lease, meaning if costs are fixed, the renewal will have fixed costs as well.
Landlords position on commercial lease renewals:
The landlord is going to want to get the most rent they can from a tenant without putting the tenant out of the property or out of business. If the inflation rate is high , which it is not as of this article, the best thing to do is tie the increases to inflation. During times of low inflation or deflation, then it is better for the landlord to tie the renewal of the commercial lease to a fixed increase. The challenge is if inflation increases during the lease term, then the landlord could be overcharging for the lease.
Tenants position on commercial lease renewals:
The tenant will want an increase if any to be as low as possible of course, that is where a commercial real estate broker like Shire Commercial comes in to help negotiate a reasonable lease rate for the tenant. If a tenant is in times of no or low inflation a increase on a commercial lease renewal should be tied to the the CPI or inflation rate.