Renegotiate lease or pay fees for leaving?
- June 6, 2010 - 3:38 PM
Q The lease on my current space seems to be overpriced, as I signed at the height of the real estate bubble. With lower rates available, should I try to renegotiate my terms, or just pay the fees to leave my lease and look for a new space?
A The solution to dealing with overpriced leases depends on several different scenarios. First, ask yourself whether you truly would like to remain in the current space but with lower rates, or whether you are also ready for a change in scenery. The second question: How many years are left on your lease? If you like your space and have several years left on your lease, you may want to consider something that has been called "blend and extend." What this means is that you negotiate with your landlord for lower lease rates that are more in line with the current market and at the same time you extend the terms of your lease for a few years beyond its normal expiration.
Depending on the amount of time left on your lease and the terms concerning early termination, the fee you would have to pay if you left could be quite high. The penalties for early termination may outweigh the financial benefits of cheaper rents at another location.
In addition to the fee, moving is generally expensive and disruptive. When making the decision, weigh the consequences of adding to your costs and the possibility of lost profits from changing locations. If your current space suits your needs and you are wary of moving, most landlords will renegotiate the terms of your lease. This gives you the benefit of a lower lease rate while giving the landlord the benefit of security with a longer lease commitment.
DIRECTOR, SHENEHON CENTER
FOR REAL ESTATE
UNIVERSITY OF ST. THOMAS
OPUS COLLEGE OF BUSINESS
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