When To Walk Away from A Commercial Real Estate Deal

Welcome to the topic “When to Walk Away from a Commercial Real Estate Deal

The decision to stop commercial real estate deal negotiations is seldom easy. Quite a few times, you enter the deal confident that you have found the perfect space for your commercial real estate needs. However, soon enough, the red flags become all too evident, and you have little choice but to walk away from a commercial real estate deal if you don’t want to end up with the shorter end of the stick.

Things are pretty unpredictable when it comes to commercial real estate deals. There’s always a chance that your requirements change before you sign the dotted line or you come across a better option. What you must remember is that at the end of the day, you have to do what’s right for your business, even if it’s deciding to opt for walking away from a commercial real estate deal.

“At the end of the negotiation process, they should feel good about the deal they signed, and by utilizing their ability to walk away, they can ensure that their lease and space are both tailored to their exact needs.”

–  Bill Himmelstein, CEO & Founder of Tenant Advisory Group

These are the words you must remember whenever you feel reluctant to cancel a commercial real estate deal midway. Of course, backing out is rarely straightforward, but when it’s about your business, you must make some tough decisions. 

Reasons To Stop Commercial Real Estate Deal Negotiations Without Inhibitions

Naturally, you cannot abandon a commercial real estate deal midway without any reason. This will give you a bad reputation in the market and will make it challenging to land a favorable deal. But sometimes, you are left with no choice. Here’s a look at the instances when walking away from a commercial real estate deal will work in your best interests.

When The Original Goal Loses Focus

When you are looking at commercial spaces, it’s easy to get overwhelmed and carried away. A particular area might appeal to you so much that you lose sight of all the other relevant factors. More often than not, business owners get tempted to sign a deal that appears most cost-effective for them. However, it’s not only your budget that you need to consider. The reason you decided to look for a new commercial space matters too.

For instance, you might have decided to look for a new office before your existing space is no longer suitable for your growing team. You need to make sure everyone feels accommodated. But when you start looking for new spaces, you find an office at an incredible rate but not much bigger than your existing building. This somewhat defeats the purpose of the entire proceedings.

Similarly, if you decide to relocate to shorten the commute for your employees, you cannot sign the deal for a commercial space that does not offer this feature, even if it’s filled with many amenities. Sometimes, you might decide to change your business location for cost-cutting purposes. 

You want to save money by reducing your square footage. But you are tempted by high-class properties that have a higher per-square-foot price compared to your existing property. It’s better to stop things as soon as you realize that you got carried away instead of regretting later. Stop commercial real estate deal negotiations right away instead of letting your business bear the brunt of your poor choice.

When To Walk Away from A Commercial Real Estate Deal
When To Walk Away from A Commercial Real Estate Deal

When Risks Outweigh The Gains

There are many factors to consider when you are looking for a new business location. And the entire process can be pretty exhausting. After all, you must ensure that your new office fulfills all your requirements to the last letter. But as time passes and you view multiple properties, you start feeling that perhaps your standards are too high. You are tempted to make a few compromises.

While there’s no harm in foregoing a few basic features you wanted, you have to ensure that your business does not suffer in the process. If you aren’t comfortable with the lease terms or think that the maintenance issues of the location will take up too much of your budget, consider it a red herring. Don’t wait for things to spiral out of control and simply walk away from a commercial real estate deal without any delays.

When There’s No Win-Win Scenario

For a commercial real estate deal to work, both tenant and landlord need to be on the same page. Both parties need to make some compromises and come up with lease terms that work for both of them.

If you feel your landlord is trying to get the better of you and using your interest and preference for the property to spin the narrative in their favor, it’s time to rethink your decision. Walking away from the deal might be a better choice in this case. 

For instance, it could be that you suspect your landlord is lying to you or trying to manipulate the situation. Also, things can get pretty heated during negotiations. Especially if one or both sides does not have a broker, which helps to keep the negotiation at arm’s length. Remember, you want to be on good terms with your landlord. After all, he or she is someone you will have to interact with for a long time to come. It’s best to sign a deal with someone you get along with and with whom you find it easy to communicate. So stop your commercial real estate deal negotiations if you feel your landlord is not amicable.

When The Landlord Takes Advantage of You

A commercial real estate deal can never work if the landlord is constantly trying to take advantage of you. Sometimes to gain a potential tenant’s favor,  landlords will appear friendly and accommodating initially. But when they get confident that the deal is in the bag, they may start changing their tune. 

If you feel that the deal appears off or your landlord is trying to make some last-minute changes to terms that you are not comfortable with, don’t ignore your instincts. It’s better to opt for walking away from a commercial real estate deal instead of wondering later how to get out of complex negotiation and unfavorable terms.

When To Walk Away from A Commercial Real Estate Deal
When To Walk Away from A Commercial Real Estate Deal

When The Demographics Are Not As Per Your Requirements

Remember, maintenance issues in a building can be fixed. However, there’s not much you can do with location. Sometimes, you might like a commercial space. Though as you ponder more on it, you realize that the site is not suitable for your business. This is the time when you should stop commercial real estate deal negotiations immediately. It’s not worth your time or energy to continue with a deal that fundamentally contradicts your goals or values for your business. 

Perhaps you found out that the area has a high crime rate or that its population is declining with time. It could also be that the location has a degrading infrastructure. In each of these situations, having your office in these locations can be detrimental to your business. So it’s best to walk away when you have the time instead of getting stuck.

Realize When The Time Is Right to Walk Away from a Commercial Real Estate Deal  

At the end of the day, you must prioritize your business. Stopping a commercial real estate deal midway can be uncomfortable. However, you must remember that commercial real estate deals last for a long time – typically 10 years or more. So if you go through with a poor transaction that doesn’t end up working out, you wouldn’t want to worry about relocating your business within a short span. This will reflect poorly on your credibility and professionalism too.

So make sure that you make a decision that’s best for your company’s interest. Don’t hesitate to walk away from a commercial real estate deal if you aren’t on board with the deal completely. Sometimes, it’s best to trust your instincts and change your path in a timely manner. Rather than follow through on a deal that is not accomplishing your goals or serving your business. 

Also read: Traditional Office Space Vs. Co-Working Space