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Proceed with caution: renewal options

Updated: Nov 28, 2019

Here, we explain three common misconceptions about renewal options.

A renewal option is simply a fail-safe for tenants and can be seen in almost every lease. Whenever a company signs a renewal option, it is a financial gain for the landlord. The problem begins when a tenant wants to remain after the original lease expires.

That is why, 70% of the time, a tenant ends up signing a renewal option. What those same tenants don’t consider is that, a renewal option should be looked at as the worst possible deal a tenant can get.

A landlord’s main goal is to maximize profits and shift economic and non-economic risk to you, the tenant.”

With the new FASB accounting rules and the company’s bottom line at risk, tenants should always go through the leasing process. Why? Read on:

What are some common misconceptions about renewing a lease?

1. We have a great relationship with our landlord so they will give us a great deal.

A landlord’s main goal is to maximize profits and shift economic and non-economic risk to you, the tenant. The lender and the landlord are focused on driving up the value of the building. The simplest way to put it is, although your current landlord is already in the business, he or she still relies on the listing broker for insights on every renewal. Don’t you think you should, too?

2. We aren’t moving. Why would we need representation?

One of the most important things to understand when it comes to hiring a tenant representative is that the brokerage fees are already embedded into the deal. Regardless, of whether you have representation or not, those brokerage fees don’t vanish. The only difference is, those embedded brokerage costs are all going to the landlord’s representative.

3. The landlord’s broker is going to work with us on a renewal.

It is important to remember that the landlord’s broker will receive double the commission if he works with an existing tenant on the renewal process. The landlord’s broker’s fiduciary responsibility is first to the landlord, which means that the landlord's broker is contractually obligated to get the best possible deal for the landlord, not you.

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