Your Second-Biggest Expense

The letter shows up, your stomach drops, and now you have three weeks to become a commercial real estate negotiator. That’s a terrible week to be learning any of this.

Rent is usually the second-biggest number in a school after payroll (sometimes the biggest, if you’re small and leaning on part-time staff), and it’s the one almost nobody prepares for. We’ll spend six months building an enrollment system and then handle a five-year, quarter-million-dollar obligation in two phone calls and a handshake. TWO.

A school owner asked me about their lease renewal this month. Twenty-plus years in the same center, about 6,000 square feet, and a landlord who bought the building a few years back. The previous owner was great for twenty years! This one lets the parking lot go and answers the phone when it suits them. Rent goes from $6,000 to $7,200 in one step… 20% in a single year, then 3% a year after that.

They researched it first, which most owners never do. And what came back was NOT what they were hoping for.

Greg Moody’s Three Stages of Landlords

Stage one, they’re selling you the lease. Warm, flexible, everything is possible. Stage two, you’re inside the term and they’re ambivalent… they don’t want to hear anything except the check clearing (and those are the good years). And stage three? I’ve got too many stories (including the 72 year old lady literally pounding the table in their conference room).

Is that fair to every landlord? No, and I know some good ones (mine included, some of the time). But the pattern is common enough that you should PLAN for it, because the owners who lose these negotiations are usually the ones who got angry about the tone and stopped watching the terms.

The Fairness Argument Loses

They pulled the comparable listings nearby, and the local band came in at roughly $12 to $16 a square foot. The landlord’s number worked out to $14.40. Inside the band, near the top of it. Not gouging.

Which means the sentence most owners rehearse for a month (“this is unreasonable and you know it”) is the one sentence that can’t survive the first reply. They have the same listing sites you do (and their broker has better ones).

OK, you say, then what DO I argue? Their arithmetic. I’ve written before about arguing the position instead of the interest, and a rent number is a position. The landlord’s interest is predictable income with no gap in it. Yours is a cost you can plan around. Those two things are compatible, which is why the conversation is winnable at all.

Your Best Power Is Knowing Your Market

What’s the single most valuable thing you can walk in holding? A real picture of your own market. Not a feeling about it… numbers, addresses, and how long each one has been empty.

Every owner who researches a lease pulls asking rents, because that’s what’s published. The problem is that asking rents are not REAL rents. A landlord will hold the headline number and give away the economics underneath it, where the public data can’t reach.

CBRE went through 3,900 leases and found the average new office lease in the first half of 2024 carried nine months of free rent and $94.69 a square foot in build-out money (CBRE, 2024). That’s office space and not retail, so don’t carry the figures over. Carry this over: on those deals, the advertised rate and what the tenant actually paid weren’t close.

Which is the same problem as studying only the outcomes you can see. You’re looking at the deals that got advertised, and not at the deals that got signed. Call three brokers (they’ll tell you more on the phone than they’ll ever publish) and ask what actually closed.

And while you’re doing all of that, write down one more column: how long has each space been sitting? It costs you nothing to record it and it’s half of what you’ll argue with later. A corridor full of listings that have been up for eight months is a completely different conversation from a corridor where everything leases in six weeks.

Your Second Power Is Being Willing to Move

Moving a school is brutal. It’s expensive, it eats months, and students fall off in the process (some of them permanently). Nobody wants to do it and I’m not going to pretend otherwise.

Look anyway. Why, if you have no intention of leaving? Not mainly for the leverage. Look because you might find something GREAT.

That’s the part owners talk themselves out of, and it’s the part I’d push hardest. A serious search might turn up a building you could actually BUY, where the money you’ve been handing a landlord for twenty years starts building something you own instead.

It might turn up one of the spaces already on your list, except this time the landlord has been carrying it for nine months and will cover your build-out and give you free rent to make it stop. It might turn up a corner with better parking and twice the drive-by traffic, two miles from where you are now.

Probably none of that happens! Probably you tour four spaces, none of them work, and you go back to your own landlord. That’s fine – the cost here is some of your time, and against a five-year obligation your time is cheap.

Fisher et al. (2011) named the leverage side of this BATNA, the best alternative to a negotiated agreement. Pinkley et al. (1994) measured it: having an alternative raised a negotiator’s own outcome, and the better your alternative was compared with theirs, the larger the share you took. You can feel that in a room. A tenant who has walked four buildings talks differently than one who hasn’t, and both sides notice.

Whatever you decide privately, the landlord never hears that moving is off the table.

What if you’re mid-lease and the term still has years on it? Fine, and this part is worth knowing. In most states a landlord has a duty to mitigate damages, which means if you leave early they can’t just let the space sit empty and bill you for the rest of the term – they have to make a real effort to re-lease it. You may still owe something. They generally can’t collect five years of rent on an empty box they never marketed.

I’m not an attorney and this isn’t legal advice, and the duty to mitigate is a state-by-state thing, so find out what YOUR state actually requires before you count on any of it. What I can tell you is what happened to me. I’ve needed to get out of a location before the lease was up, and usually it took something like 90 days of rent or less. Again not legal advice and YMMV.

Consider Vacancy

Run their numbers. The distance between the landlord’s proposal and a reasonable counter was about $38,000 across five years. That’s the whole fight!

Now price the vacancy. Six thousand feet at the landlord’s own $14.40 is $7,200 a month, so six empty months costs $43,200 in rent alone – MORE than the entire gap, before a commission, before build-out, before free rent for the next tenant.

How long would 6,000 feet actually sit? Nobody can promise, and that’s the useful part. JLL tracked when new retail leases got signed against when the space came available, and only 36% happened inside five months. More than 14% took longer than 25 months (JLL, 2026). Two years of NOTHING, on about one space in seven. And in their center a much smaller vacancy had been advertised for nine months already, which is evidence you can put on the table without saying a word about it (they know exactly how long it’s been sitting).

How to Counter the Increase

Whoever puts a number down first sets the frame for everything after it. That’s the anchoring effect described by Tversky and Kahneman (1974), and Galinsky and Mussweiler (2001) ran it three ways in actual negotiations and found the side making the first offer came out ahead every time.

They found something else too. When the receiving side deliberately focused on information that contradicted the anchor, the advantage disappeared. You don’t argue the landlord’s NUMBER. You go get the facts it can’t survive contact with: their vacancy, their re-lease timeline, the cost of replacing you.

Then counter on structure. If they want 20% and then 3%, offer an even climb that lands on the same year-five figure they proposed. You’ve given them the endpoint they asked for, and all you’re negotiating is how you get there. It saves less than winning outright (probably a third as much) and it’s much harder for them to refuse.

Concessions Beyond the Rent

The monthly number gets all the attention, and it’s one line in a document with thirty of them. Most of what follows is EASIER for a landlord to agree to than a lower rent, because none of it touches the rate their building gets valued on. That’s the whole reason these are available to you.

Rent abatement. More variations here than owners realize. The obvious version is a few free months at the front of the term or half rent for 6 months. One lease, I got 3 months free and 6 months half plus tenant improvement money. I’ve seen owners negotiate every April free, every year of the lease and some other strange combinations.

Tenant Improvements. This is pretty common, I have gotten either money or the landlord did the TI’s themselves. Note: make sure if they do the improvements, it’s in the lease to build to all applicable city and state or other codes. This can even include signage. (if you’re renewing a lease you can get these too).

CAM limits. Unusual, and it can get negotiated in. A cap on how much your common-area maintenance can rise in a year protects you from the one line in your lease you have no control over (and the one that tends to surprise people in year three).

HVAC warranties or replacement. On 6,000 square feet you may be sitting under three or four rooftop units, and something is going to die inside a five-year term. Get a warranty, or get a written commitment to REPLACE rather than repair a unit past a certain age. This is the one I’d fight for.

Roof warranty or repair. Usually the landlord’s responsibility already… usually. Get it in writing anyway, with who pays and how fast.

Other repairs and updates. Parking lot, exterior lighting, storefront, signage, restrooms, HVAC balancing. If the center has been let go, this is where you get that addressed, and you’re mostly asking them to do maintenance they already owe.

And read your lease. All of it, carefully. The concessions available to you are the ones your particular document allows for, and no article can tell you what those are. What can you ask for? Whatever is in there, plus whatever you can talk them into.

Another consideration, from the landlord’s point of view all these are cash built into the lease. If they offer $15,000 in TI money, you can often flip that into other concessions.

The Expense Line Decides the Bill

One of the centers on their comp sheet advertised $15 a foot… plus $4.50 a foot in additional rent. On 6,000 feet that second number alone is another $27,000 a year, and it never appears in the headline.

Before agreeing to any monthly figure, get it in writing that the allocation doesn’t change. Not most of it. ALL of it: taxes, insurance, CAM, roof and HVAC, common utilities, management fees, capital repairs, handled exactly the way they are today. A landlord who can’t win on base rent can absolutely win here, and it’ll look like a smaller concession on paper than it is in your checkbook (which is rather the point).

The Eighteen-Month Clock

When does this start? Put a date in your calendar right now (before you finish reading this), eighteen months before your term ends. Between that date and the letter, here’s the work.

Find something good at eighteen months and you have room to DO something about it – a landlord courting you will often cover build-out, give you free rent, or help with moving costs, and those concessions can offset most or all of what it takes to settle out of your current lease early. Find the same building at three months and all you can do is look at it.

Fitness and service tenants are one of the few categories retail landlords are actively courting right now, while apparel and electronics contract (JLL, 2026). A school that fills a center with families four nights a week is a tenant they want, and you can say so out loud in the meeting.

What to Do This Week

Find your lease and read the expiration date. If it’s more than eighteen months out, you have time and you should USE it. Inside eighteen months, start touring this month.

And before you sign anything, have a commercial real estate attorney read the actual document – the expense allocation, the assignment clause, any personal guarantee, and whether you get a renewal option on the back end. That review is cheap next to what’s in the paper (I’ve watched owners spend more on a move than five years of the increase would have cost them). There is a tendency to be cheap here and not do this but it reminds me of the old adage “pay full price for lawyers and roses!” I’m giving you negotiation strategy here, not legal advice.

If you’re sitting on a renewal right now and want to work through it, reach out. Most owners have more leverage than it feels like from inside, and it usually costs nothing to go find out.

Greg Moody, Ph.D.
Chief Master Instructor