When initially negotiating a lease, most tenant’s request a renewal option on the space they will be leasing. This will allow them to continue operating their business at this location for a set number of years in the future. The rental rate for the renewal option period will be stated in the lease, quoted as a finite number or a percentage of increase based on the annual rent in the initial term.

When the time to exercise the renewal options occurs, it is possible, however, that the tenant may want to make certain the option renewal rate is competitive with other rental rates in that market at that point in time. We suggest the 5 cost saving tips below when excising renewal options.

1. Assess the pricing of a renewal option as though it were a totally new transaction.

2. Solicit competitive proposals from neighboring buildings six months prior to the notification date for the renewal option.

3. Give the current landlord an opportunity to compete with the other offers received. Begin the process early enough so the landlord knows there is enough time to move if they won’t match or beat other offers.

4. An attempt to renegotiate a lease with the existing landlord instead of simply renewing or exercising an option may make a more competitive rate possible.

5. Following these cost saving tips allows you to determine whether the proposed renewal option rate is truly at fair market value. It is important to pay attention to all notification dates within the lease and get professional assistance with your real estate needs.