Negotiation Basics, Part 2 (How We Renewed Our Lease)
How We Used Negotiation Strategies To Renew Our Lease
|Mar 2, 2020||9|
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To show you how to put my lease negotiation strategies from last week’s issue in action, let’s walk through our most recent renewal:
When our lease neared expiration last year, our large corporate landlord demanded a 10% increase for a 1-year renewal in a flat to slightly up rental market. Having never renewed a lease with them before, and having heard from other tenants that the leasing office was pretty unreasonable and a lot of people moved out at the end of their first term, we weren’t sure what to do.
We love our apartment, and although a 10% increase would have been a financial hardship, we could have afforded it. Moreover, we are very settled in the neighborhood, and moving would have been extremely costly. But at the same time, 10% would have been totally crazy, and would have been a terrible setup for the next renewal. And meeting in the middle was barely better, with a 5% increase far above market and likely to spiral further out of control at subsequent renewals.
So, how did we prepare for our response? We used the strategies discussed in the prior post:
First, we assessed our relative leverage. We used StreetEasy to look at current asking rents in the building as well as nearby buildings. We also researched the current incentives for new tenants, as well as the number of vacancies. Our building was offering 1-2 free months on 12-24 month leases, as well as an additional month of rent as an incentive to brokers to bring in new tenants. There were also a few apartments in the building that had been vacant for several weeks, including an apartment with a similar layout whose asking rent was only slightly higher than our current rent. We concluded our negotiating leverage was reasonably strong.
This also told us our landlord’s 10% rent increase demand was not a reasonable first offer. The fact that it was a round number (exactly 10%) made us suspicious, and our suspicion was confirmed after we talked to other tenants, as well as friends who lived in a building with a similar corporate landlord. It really seemed our landlord was just lobbing 10% increases at everyone, hoping some would stick, or that they could at least negotiate something in the middle (which would still be unreasonable).
Next, I realized it would be important to signal that we were not desperate to renew, and that we had a strong BATNA (best alternative to a negotiated agreement).
What did we do? First, we waited about a week after the first renewal offer before responding. Next, rather than immediately make a counteroffer (which would suggest that we viewed the landlord’s initial offer as a credible start to negotiation), we simply asked the landlord to make time for a phone call to discuss our options. On the call, I repeatedly but politely asked the leasing agent to explain their reasoning for the renewal offer. After a few minutes, and after citing comparable rents in the building to make clear how excessive a 10% increase would be, it became clear that there was no actual reasoning. The landlord would literally ask for a 10% rent hike at each renewal and hope people would just take it, or compromise at 5%, still an exorbitant increase.
So, I politely explained that we didn’t feel that increase was reasonable, and that we’d hold off on renewing for now (expiration was still a couple of months away) but hoped they could come back with an offer closer to market. After a few awkward pauses (embrace the awkwardness!), the landlord suggested a 5% increase. This appeared to be their real first offer, and we treated it like one, telling them we’d consider it and get back to them.
A few days later, I scheduled a time to talk to the leasing office again on the phone.
This time, I tried to expand the pie by asking about other concessions that would make us more likely to stay. I asked about whether they could offer us a free month in our renewal, given that they were offering two months to new tenants. This was a non-starter, but then we asked if they’d consider a two-year renewal with no rent increase in the second year. Because we have young children and didn’t want to move, two years of certainty would be very valuable to us. And it might have value to the landlord, who was already dealing with a higher-than-normal level of vacancies.
In this case, the leasing agent was very helpful, telling us that the landlord was very interested in a two year renewal and would probably concede a bit more on the rent on a two-year lease.
Ultimately, we agreed to a two year lease at a monthly rent about 2.6% higher than our current lease, with no increase in the second year. This wasn’t a total victory, but much closer to what we thought was reasonable, and we came away happy.
I hope this has been helpful. If you liked it, please share it with a friend! Also, please send me your feedback, requests, and success stories. I’d love to know what you like, don’t like, and are looking for from this newsletter.
Do you have any recent lease renewal stories, or negotiation wins? I’d love to hear about them and may feature them (anonymously, of course) in an upcoming post.
 In this part of the process, we were very careful to be polite and not directly call the increase unreasonable or excessive, but simply to illustrate that it was not in-line with rents in the building or the area.
 They didn’t exactly say this right out, but it was obvious.
 Being polite to the leasing agent throughout paid off as well. Although their interests may be somewhat opposed to yours, they may be less focused on pushing a steep rent increase on you than on simply keeping you in your apartment. And sometimes they will reveal some insight into the landlord’s objectives, as they did in this case.