Can You Renegotiate an Office Lease Mid-Term?

Nothing in a typical lease requires the landlord to revisit the rent, the size of the premises or the term before expiration. If you ask for a reduction and offer nothing, the usual answer is no, and the landlord is within its rights.

Mid-term changes happen anyway, because both sides can gain. A landlord cares about more than this month’s rent. It cares about how long its tenants are committed, how full the building is, what its lender sees, and what a buyer would pay for the property. A tenant willing to help with one of those can ask for something back.

So the working question is practical: what could you offer this landlord, and is now a moment when it would value that offer?

Blend-and-extend is the best-known structure. The tenant agrees to add years to the lease. In exchange, the landlord replaces the current rent with a new rate that takes effect immediately, somewhere between the old rate and what the landlord would expect on a new lease today. The old and new rents are blended, and the term is extended.

It suits a tenant whose rent was set when the market was stronger, who likes the space, and who is confident it will still need the space for years. The landlord gives up some income in the near term and gains a longer commitment, which makes the building easier to finance or sell.

A blend-and-extend can carry more than a rate change. Because you are in effect signing a new deal, you can ask for the things a new tenant would receive.

• Free rent, or a period of reduced rent, at the start of the restructured term.
• Money for refurbishment or a reconfiguration of the suite.
• A reduction in the security deposit or letter of credit.
• New or updated rights: expansion, termination, renewal, and sublease and assignment terms.
• Corrections to clauses that have caused problems, such as operating expense pass-throughs.

The cost is commitment. You are trading flexibility for savings. For a company whose headcount could move sharply in either direction, added years of term deserve a hard look before the lower rent is accepted.

If the problem is too much space, the request is a contraction: returning part of the premises to the landlord and paying rent on the remainder. Landlords agree to this more readily in some situations than others.

• Another tenant in the building wants to expand into the space you would return.
• The portion you would give back can be separated cleanly, with its own entrance and access to exits and restrooms.
• You are willing to extend the term on the space you keep.
• You will pay a fee, or cover the cost of the wall and the work needed to divide the suite.

Where the landlord has no use for the space, expect resistance, and compare the alternatives. Subleasing the surplus keeps you liable to the landlord but can recover part of the cost. A negotiated buyout of the whole lease followed by a move to smaller space is sometimes the cleaner answer.

The opposite problem is common for technology companies: the lease has years to run and the team no longer fits. This is the easiest mid-term conversation to have, because you are bringing the landlord more business.

A landlord with a larger vacancy in the building, or elsewhere in its portfolio, will often cancel the existing lease in exchange for a new lease on the larger space. The owner fills a vacancy and keeps a growing tenant. The tenant gets space that fits, and may get a new build-out as part of the transaction.

The same logic can work in reverse. A tenant that needs less space may be able to move to a smaller suite in the same building if the landlord has a use for the larger one. What makes either move possible is that the landlord ends up with a signed lease it prefers to the one it had.

Timing and the landlord’s circumstances decide most of these conversations.

• Landlords tend to listen when the building has vacancy, when market rents have fallen below yours, when a sale or refinancing is ahead and a longer lease term helps, when your expiration is approaching, or when another tenant wants your space.
• Landlords tend to decline when the building is full, when your rent is at or below market, when the lease has many years left, or when a recent sale or loan was underwritten on your existing rent.
• Some landlords cannot agree alone. A lender or an investment partner may have to approve any change to the lease, which adds time and uncertainty.

Information about the landlord is therefore as useful as information about the market. Knowing that an owner is preparing a sale, or has just lost a large tenant, changes what you ask for and when.

1. Decide what you need: lower cost, less space, more space or a way out.
2. Read the lease for rights you already hold, such as a contraction, termination or expansion option, before asking for a favor.
3. Establish what your space would rent for today and what concessions new tenants are getting.
4. Learn what you can about the landlord’s position: vacancy, ownership plans, financing.
5. Work out what you can offer, usually term, and what it is worth to the landlord.
6. Have your broker present a specific written proposal, framed as a benefit to both sides.
7. Document the result in a lease amendment reviewed by your attorney.

Keep paying rent on time throughout. Withholding rent to force a conversation puts you in default and hands the landlord its remedies under the lease. It ends negotiations more often than it starts them.

Be careful about how the request is framed. A proposal to restructure a lease because the company wants a long-term home reads very differently from a plea for relief, and the second invites questions about your finances that can make a landlord more cautious, not less.

TAG negotiates mid-term restructures, expansions and relocations within a building for technology, software and data companies, alongside new leases and renewals.