Negotiating a rent reduction on your lease
By Jeff Grandfield and Dale Willerton – The Lease CoachFeatures Business and Operations Premises leasing rent reduction the lease coach
We have seen far too many pizzeria tenants pay too much monthly rent to their landlords. What many such tenants may not realize is that this regular expense can be decreased if handled properly!
These are just a few of our tips for successfully negotiating a rent reduction on your restaurant’s lease renewal.
You must get organized and do your homework. Getting organized and beginning the lease renewal process should start 12 to 15 months in advance for pizzeria tenants leasing commercial space. In most cases, you should not need to exercise your lease renewal option clause as long as there has been a dialogue with your landlord and it has been established that the landlord wants you to stay for another term.
Preparing for the battle. When we begin to negotiate a lease renewal for a tenant, our first step is to review the lease document that was signed five or 10 years ago. You may have provided a personal guarantee, letter of credit, deposit, etc., and these terms can be renegotiated during the lease renewal process as well. If you simply exercise your lease renewal option clause, often the rental rate will increase and the tenant will forgo the opportunity to negotiate on other important terms.
If a rent reduction on a lease renewal is justified either by a change in market rents for the area or a decline in sales revenues for the tenant you should be prepared to show profit and loss statements. We also like to show the landlord restaurant industry articles, trends or other supporting information about your industry and how it is doing in the marketplace.
Talk to other tenants in your building. Valuable information can be gathered by talking with your neighbouring tenants. We interview tenants to gather information and to determine their future plans. If other tenants are not planning to renew their lease, thereby creating more vacant space in the property, you will have more leverage. If another tenant has renewed his or her lease, the rental rate they have agreed to pay will likely factor into the rental rate the landlord expects you to pay on your renewal.
Creating competition for your tenancy. So many pizzeria tenants go straight to their landlord regarding their lease renewal. We like to find alternative locations and solicit lease proposals from other landlords as a means of making your existing landlord re-earn your tenancy.
Approaching your landlord and your property manager. Confirm your landlord contact and make sure you are negotiating with the right person. You may have entered into the lease agreement negotiating with a commercial agent or broker. Once again, you need to size up your opponent and position yourself for the lease renewal process.
Get the landlord’s lease proposal. We don’t believe in negotiating on the first date. We prefer to discuss and request the lease renewal proposal from the property manager or landlord. This puts us in a position to counter-offer and negotiate on behalf of the commercial tenant we are working for. Most of the negotiating process will take place verbally – but only after the landlord has provided the lease renewal proposal or document.
Submit the counter-offer to your landlord. Multiple counter-offers from both parties are part of the lease renewal process. If you try to slam-dunk the lease renewal too quickly, your attempts for a rent reduction will probably fail. We recently negotiated a lease renewal, deliberately slowed down the process and renegotiated every single term in the formal lease agreement, thus saving the tenant tens of thousands of dollars.
Negotiate, negotiate, negotiate. Most pizzeria tenants are not negotiating to win at all … they are negotiating not to lose. The landlord and/or the landlord’s representatives are negotiating to win and you must do so as well. It is extremely expensive for a landlord to replace an existing tenant. By the time a landlord pays real estate commissions (which could be $20,000 to $40,000), changes the look of the unit, puts in tenant allowance money, and so on, the process gets very expensive.
A good boxing match doesn’t go two rounds; it goes 10 rounds. Remember, this is not an event: this is a process. Some of the best deals we got for pizzeria tenants took four to six months to negotiate. Even if you don’t have that much time left on your lease, usually you can hold over without paying extensive penalties. •
Dale Willerton and Jeff Grandfield of The Lease Coach are commercial lease consultants who work exclusively for tenants. Dale and Jeff are professional speakers and co-authors of “Negotiating Commercial Leases & Renewals for Dummies” (Wiley, 2013). Got a leasing question? Need help with your new lease or renewal? Call 1-800-738-9202, e-mail DaleWillerton@TheLeaseCoach.com or visit TheLeaseCoach.com. For a copy of our free CD, “Leasing Do’s & Don’ts” for Commercial Tenants,” email your request to JeffGrandfield@TheLeaseCoach.com.
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