It’s that time again – your medical office lease is coming up for renewal. As a healthcare provider, you know that your office space is critical to your practice. The location, layout, and condition of your office impact your patients, staff, and bottom line.
When renewal time approaches, you have leverage to potentially improve your current lease terms. Do not automatically accept the landlord’s proposed renewal terms without first trying to negotiate a better deal. Here are some tips when negotiating your medical office lease renewal:
Start the Process Early
Ideally, you should begin discussions 120-150 days before your lease expires. This gives you ample time to negotiate without feeling rushed into a decision. Mark your calendar well in advance of renewal so you can prepare.
Take time to thoroughly review your current lease agreement and note key terms like:
- Base rent rate
- Annual rent bumps
- Operating expenses
- Renewal options
- Lease length
In addition to studying your existing lease, also research current market rates for comparable medical office spaces in your area. Look at spaces of similar size, condition, and location. What are other healthcare tenants paying in base rent? What concessions are landlords offering new tenants? This market information will help you develop your negotiation strategy.
Consider Proposing a Shorter Lease Term
Landlords often prefer long lease terms of 10+ years to guarantee a stable income. You may be able to get concessions from the landlord if you offer a shorter term of 3-5 years instead of insisting on a long-term lease. This gives you flexibility if your space needs to change.
Seek Tenant Improvement Allowance
Even if your office space is currently in good shape, you can seek a tenant improvement allowance from the landlord to fund future renovations or improvements. This ultimately enhances their asset when you eventually vacate. Have specific improvement projects in mind and quantify costs to justify requesting an allowance. For example, you may want to replace flooring, paint, upgrade lighting fixtures, or reconfigure space.
Negotiate Lower Rent Increases
Most office leases build in annual rent increases of 3% or more. When renewing, try to negotiate a lower rent bump than what the landlord proposes. For example, get them to agree to increases of just 2% or $1 per square foot each year. This keeps more money in your pocket.
Review Operating Expenses
Make sure you thoroughly understand what you are being charged beyond just base rent. Types of operating expenses that tenants pay a share of often include property taxes, insurance, utilities, maintenance, and other building services. Seek reasonable limits on how much your share can increase each year.
Address Any Current Lease Dissatisfactions
Think about aspects of your current lease that you seek to improve upon renewal. Have you outgrown your space? Is the landlord slow to respond to maintenance issues? Now is the time to address these concerns.
Consult a Commercial Real Estate Attorney
An experienced real estate attorney can review your existing lease and provide guidance on state laws impacting commercial leases. They can help craft renewal proposals and provide counsel during negotiations. Landlords often have attorneys, so you need proper representation too.
Send Renewal Proposal in Writing
Once you’ve determined renewal terms to seek, put your proposal in writing and send to the landlord. Include proposed changes to rent, lease length, tenant improvement allowance, operating expenses, and other key items. A written proposal is a smart negotiation tactic.
Be Ready to Negotiate and Compromise
The landlord may counter your proposal or reject certain requests. Maintain open communication and be prepared to negotiate to reach a fair deal. Both sides will likely need to compromise. Don’t get fixated on “winning” every point – focus on your highest priority terms.
Allow Time for Review
Don’t let the landlord pressure you into rushing through lease renewal. Request at least 10 days to thoroughly review their counteroffer. If needed, negotiate further until terms are acceptable to both parties. If you ultimately can’t reach an agreement, you may need to consider relocating your practice when the lease expires.
The renewal process allows you to address areas of your current lease that you seek to improve. With proper planning and negotiation tactics, you can potentially reduce costs and get a better office lease deal. Just make sure to start the process early, do your homework, and know your negotiating priorities.