Let’s get one thing straight: lease options benefit tenants – not landlords. Yet, so many landlords hand them out like candy, locking in below-market rents for years.
Right now in South Florida, I have tenants paying $34/SF whose leases are set to roll in 18 months… and guess what? The market rate is nearly $70/SF! But with three five-year options at a measly 3% annual increase? That’s money left on the table—and a serious hit to your property value.
If you must give options, here’s the Rockstar way to do it:
- Match the option length to the initial lease term (5 years gets a 5-year option—no more).
- For mom-and-pops, keep the option at market, not fixed. You don’t know what the market will look like in 5 years—protect yourself.
- Franchisees are not nationals! Just because it says Jimmy John’s on the sign doesn’t mean it’s not a first-time operator. Treat them accordingly.
- Use pressure to your advantage: Put a leasing sign in the window and start showing the space 90 days out. You’ll get decisions real quick.
Be fair, but don’t be foolish. You’re managing a multi-million dollar asset. Start negotiating like it.