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Real Estate Best Practices

How to Avoid the Nightmare of a Missed Notice Date

By February 26, 2018 One Comment

When I was in college and grad school, I waited tables to pay my tuition bills.  At that time, my nightmares were either about tests for which I was not prepared or endless tables of customers waiting inordinately long for their food.

Fast forward to the present.  As a tenant broker, my work-related nightmares are about missing my clients’ lease renewal or termination notice dates.  It can be truly catastrophic for a tenant to miss a notice date and risk forgoing an option to renew or terminate a lease. And, landlords are not likely to let the lapse slide and honor the late notice — especially where tenant-favorable option language is concerned.

An example

You lease 10,000 square feet in an office building in Austin, Texas.  You have the right to renew for five years at a 3% increase over your then-current rental rate.  Because you originally leased your space before the market skyrocketed, your rental rate is currently $10 per square foot below market and this option will enable you to enjoy that below market rate for five more years.  If your lease says that you must give landlord 270 days prior notice to exercise this option and you don’t realize until too late that 270 days does not equal nine months, you just missed the notice deadline.  If you then end up with a market renewal rate, you just cost your company $500,000.  Ouch.

How do you ensure you never miss a date, whether you are the tenant or the broker representing the tenant?

My solution has been to abstract every lease into a lease administration database licensed by my company.   I then set ticklers to alert me in advance of approaching notice dates.

Some larger companies already have their leases in lease admin systems, however, I find this is the exception rather than the rule.  Further, often the broker does not have access to the system.  I will happily duplicate the client’s system in order to sleep well at night knowing that I am not going to miss a date.

How does this work?

After a lease is fully executed, I make sure it is abstracted into our database.  As part of that process, I set reminder ticklers to give me sufficient advance notice so that I have can notify my client of the approaching deadline and help them figure out how they wish to address it.

If my client leases 100,000 square feet and they have a right to renew for five years with twelve months’ notice, I am going to set my tickler for at least 18 months prior to the notice date to ensure the client has time to evaluate renewal versus relocation scenarios prior to giving notice.  For smaller spaces and/or shorter terms, ticklers are set closer to the notice dates.

What do I do when I receive a tickler notice?

On a renewal, I will look at:

  • My client’s density in the location: Do they have enough space? Too much?
  • My client’s rental rate vis a vis market
  • The availability of relocation options in the market

I will synthesize the information above into a memo to my client so that they can evaluate their current situation and begin to formulate a strategy with regard to the renewal.  If my client is not yet ready to make a decision, I will reset the tickler for a month or two later so that I am not in danger of forgetting the notice date.  I keep resetting the tickler until my client has exercised or waived whatever right is concerned.

There are other benefits to having access to my own lease admin files.  I can answer any client questions regarding previously negotiated leases very quickly and accurately.  I can facilitate speedy review of any estoppel forms received by my clients and also monitor their leases for renegotiation opportunities.  For these reasons, my clients readily agree to let me abstract their leases.  And, because this is an application to which only the broker working on the deal has access, there are no privacy concerns as to other brokers or clients.

If my approach has piqued your interest, I am happy to recommend lease admin programs or discuss my process.  You can contact me here.

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