Hold Over - Costly, But Easy to Avoid
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So you
signed a lease on an office for your company a few years ago, but it
will expire in a couple of months. You really want to either move or at
least do a market study to be sure that you get a fair deal if you stay
and renew. There is other vacant space in the building so you are sure
your landlord won't mind if you stay a little longer than the
expiration date.
 You don't talk with the landlord, but everything seems to be fine until you receive a letter from your landlord a couple
of weeks after the lease expiration. It says that you have to pay twice
as much as the normal rent because you are now in holdover. Now that the
landlord has your attention (a gun to your head), your priorities are suddenly
different.
When
a tenant continues to occupy the leased premises after the lease has
expired, it's call Holding Over. It can occur with or without landlord
consent. The rent is usually much higher during holdover - 1.5 to 3
times higher - and that continues until the tenant vacates or
renegotiates the lease.
This
is why it's so important to plan ahead for your lease renewal or
relocation. I recommend that you start at least 3 months before you
must exercise your lease renewal if you plan to stay in the building.
A move or purchase may require more time especially if construction is
required. Most renewal options require 6-12 months prior written
notice to be exercised so I am suggesting that you start 9-15 months
prior to expiration. That may seem like a long time, but you should
never exercise an option unless you know what the landlord's response
will be and you can only determine that if you have done your homework
in advance.
There
is rarely a time when it makes sense to pay holdover rent. If you are
seriously negotiating with your landlord to renew, ask that the
holdover penalty be waived. A smart landlord will charge the holdover
rent anyway and tell you it will be credited back to you if you decide to stay.
That way he keeps the pressure on to decide quickly and may give him an
economic advantage compared to your other options.
Of
course, the smartest thing is to hire a corporate real estate advisor -
a real estate broker who exclusively represents companies in leasing or
buying commercial property for company use. Surprisingly, this is what I do. I am generally a
free resource who does all the market studies and negotiates with
landlords on your behalf as your fiduciary. The landlord typically pays my fee even if you renew in your current office or warehouse space.
Plan ahead and save.
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Jill Weinberg - A Techie Again
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 I am sorry to announce the departure of Jill Weinberg from Reata Commercial Realty, Inc. She was a great asset for the company for a few years, but she has moved back to the high-tech world and has accepted a position with Ericsson.
I will miss her, but wish her the best.
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| Thanks for Reading |
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Reata Commercial Realty, Inc.
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Jim Little
