Coping with a Lost Lease

Early planning will help, but be ready to invest time in the search

By Jeff Ostrowski

You've probably seen the storefront signs before. "Lost Our Lease. Everything Must Go!" No business owner is eager to move, but sometimes you have no choice. Maybe your landlord has declined to renew your lease. Maybe you're subleasing from a tenant who's in default. In rarer cases, your building could be taken in an eminent domain proceeding, your landlord could embark on a major renovation, or you could be the victim of a termination clause that allows you to be booted out to make way for a bigger tenant.

Whatever the reason behind a lost lease, the important thing is what to do now. Here's how to handle a potentially difficult situation with aplomb:

Try to buy some time. Tell the landlord you need three or four extra months before you can vacate the property.
Don't dally. Start your search right away — ideally, a year before your lease expires.
Shop around and negotiate aggressively. As a potential tenant, you wield bargaining power.

Assess your needs

Is it time to buy, or should you keep renting? Do you need more space or less? Take too little space and you'll be moving again soon. Take too much and you'll waste cash.
Try: The National Federation of Independent Businesses offers a wide range of helpful advice on negotiating a lease, moving your business and other leasing-related topics.

Do it yourself or hire a broker?

If you need only a small office suite, you probably can handle the search yourself. If your requirements are more complicated — you need a large warehouse, for instance — use a commercial real estate broker.
Try: Ask other entrepreneurs for names of good brokers. Bizspace offers a guide to brokers in 16 markets throughout the country.

Look for a tenant rep

So-called tenant representatives look out for renters' interests and handle negotiations with landlords.
Try: Visit OfficeFinder's tenant rep guide to find help.

Scope out the market

Commercial listings aren't as easy to find as residential listings.
Try: Check classified ads in weekly business journals and daily newspapers. Major real estate brokers such as CB Richard Ellis, Cushman & Wakefield and Marcus & Millichap post their property listings online.

Haggle, then haggle some more

Commercial leases are so complicated that they provide myriad opportunity for negotiation.
Try: Tenant rep MacLaurin Stewart offers some tips.

If you're losing a sublease because the tenant is in default, try to negotiate a direct lease with the landlord.
Market conditions can swing wildly. Last year's renter's market can become this year's tenant's market.
Beware enticements. A low rate valid only for one year might not be a great deal at second glance.
Understand which costs are your responsibility. In a gross lease, your payment includes everything. In a "triple net" lease, you also pay for property taxes, insurance and common-area maintenance.
Be prepared to haggle over "tenant improvements." Your landlord typically will pay some of your costs to customize the space; how much is open to negotiation.