Correct timing is key in the tenant lease cycle. It is vital to understand when expiry dates occur and when you have the right to exercise your options to renew. In this case, the tenants involved had allowed their ‘option to renew’ notification date to pass. This put them in a difficult position with the landlord as they were backed into a corner by attempting to renegotiate a new term with very little time left in their current one.
Problem
This case deals with a group of six family physicians who had only a few weeks left until their lease expiry. They did have an option to renew; however the deadline which they had the right to exercise it had passed three months prior. The physicians desperately needed an extension in order to renegotiate many of the unnecessary risks in their lease documentation. Knowing the group had little chance of finding a new location within the specified period of time, the landlord refused to grant the extension without the tenants first agreeing to an unreasonable increase in the rental rate.
Strategy
Given that the tenants were now in a difficult position, being ‘forced’ to agree to unreasonable terms if they decided to stay, finding other options became necessary. The goal was to try to find other possible relocation opportunities to increase the group’s flexibility and leverage in decision-making. Relocation options were developed immediately in order to win back the leverage that they needed to budge the stubborn landlord. A location in a nearby mall was found — though it was 1000-sq-ft larger and more expensive than the current landlord was proposing.
Execution and Results
Although the proposed new space was larger than the group required, the new landlord insisted on leasing the entire space. After some searching and many discussions, it was agreed that the extra 1000-sq-ft would be filled by a pharmacy that was willing to lease the extra space, all according to college guidelines. This component allowed the physicians to move forward with their new location, and thus avoid falling further into their current landlord’s trap. The group now had the leverage they needed — a viable relocation opportunity.
In the end, the physicians moved into a more comfortable and better planned space, next to a pharmacy, with a lease that was constructed to be fair for all parties.
Conclusions
This case had disastrous potential simply because the tenants waited too long to enter into renewal negotiations. It is vital to be aware of the risks within the lease document — such as critical dates. The best time to begin lease renewal negotiations is approximately 18 months prior to expiry.
Stefanie Herron is a Business Development assistant for Cirrus Tenant Lease Services, which specializes in tenant lease negotiations for dental practitioners across Canada.
