01 May Lease Renewals: What is Fair Market Value?
As a business owner, you are not expected to know competitive rents, concessions, or what the fine print entails in your lease – landlords take advantage of this. When renewing your lease, how are you supposed to know what is considered fair market value? Does your lease contain an “option to renew” clause at fair market value (FMV)? Mazirow Commercial, Inc. discusses what fair market value is and the variety of factors that influence it.
What you don’t know will cost you
Working with a tenant advocate is crucial when analyzing your lease renewal. Tenants will sit at an even negotiating table when a tenant advocate represents them. Landlords know exactly the high-end of the market for rental rates and will set forth the highest fair market value to a tenant. Fair market value is subject to negotiations. A tenant advocate combs through your lease to ensure you are paying the fair market price and will negotiate additional cost savings and concessions for you. There are several costs associated with running a business and overpaying your rent should not be one of them.
There can be many hidden items woven throughout your lease that cost you more money over your lease term. As an example, often an “option to renew” clause will state the FMV will be the rental rate for the option term; however, in fine print, the option language may also state if the FMV is less than the last month’s rent of the expiring lease term, then the higher rent will be the option rate.
The pass-through of operating expenses impacts your overall cost, especially if the base year is not re-adjusted when renewing a lease. Too often, landlords will not address a revision in the base year, hoping the tenant is unaware of the opportunity to readjust to the year of the lease renewal. When renewing a lease, tenants can negotiate tenant improvement dollars, concession on parking, and beneficial occupancy – all items the landlord is not going to set forth, as it costs the landlord dollars.
Tenants are in a powerful negotiating position when renewing a lease. Any vacancy is an interruption in income stream for the landlord. A vacancy of any sort costs the landlord a tremendous amount of money, which the landlord understandably wants to avoid. Creating a competitive negotiating platform when renewing your lease will save you a considerable amount of rent dollars and protect your rights.
Time and Expertise
Tenants should begin the process 18 to 24 months in advance when renewing their lease. This gives you ample time to be informed on alternative sites of real estate, fair market value, and how to negotiate. Market expertise and competition are your most powerful tools in negotiation. Working with a professional tenant advocate will help you save time, money, and the headache of additional research. Mazirow Commercial’s experts will dedicate their time and expertise to ensuring your lease renewal reflects the fair market value.
Make sure you’re not paying more than your fair share. 365 days a year Mazirow Commercial negotiates leases to protect and save tenants rent dollars on many lease terms. The landlord is fully informed about the terms of the market place, are you? Don’t go to the table alone, contact us today. We are the tenant advocate.