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How to negotiate a lease renewal rent reduction for pizzeria tenants
If you want to negotiate a lease renewal that involves a rent reduction, you need to get organized and do your homework.
If you want to negotiate a lease renewal that involves a rent reduction, you need to get organized and do your homework. The lease renewal process should start at least 12 months in advance for pizzeria tenants leasing commercial space. In most cases, you should not need to exercise your lease renewal option clause, provided there has been a dialogue between you and your property manager and it has been established that the landlord wants you to stay for another term.
Talk with other tenants in your building
Valuable information can be gathered by talking with your neighbouring tenants. The Lease Coach (the authors of this article) will 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 neighbouring tenant has renewed their lease, the rental rate they agreed to pay will likely factor into the rental rate the landlord expects you to pay.
Create competition for your tenancy
So many pizzeria tenants go straight to their landlord regarding their lease renewal. We like to create competition for our tenant clients. Instead of handing over your lease renewal to your landlord on a silver platter, we find alternative locations and solicit lease proposals from other landlords as a means of making your existing landlord re-earn your tenancy (even when the tenant is not considering a move or relocation).
Approach 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 real estate agent for the landlord’s in-house representative; however, most lease renewal agreements are negotiated with a property manager with whom you may or may not have a good relationship.
Obtain the landlord’s lease renewal proposal
We don’t believe in negotiating on the first date. We prefer to discuss the lease renewal with the property manager and invite a proposal. 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 lease renewal proposal or document has been provided by the landlord.
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 for a client who was pleasantly surprised by how effective this strategy was. We deliberately slowed down the process and renegotiated every single term in the formal lease agreement that needed to be revisited.
Negotiate, negotiate, negotiate
Negotiate to win. 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.
If the landlord is giving lease inducements (like free rent and/or tenant allowances) to attract new tenants moving in, we believe that the landlord should offer those same incentives to you to entice you to stay. You are the repeat customer. You have the track record of paying rent.
A good boxing match doesn’t go two rounds; it goes 12 to 15 rounds. Remember, this is not an event … this is a process. Some of the best deals we get for commercial tenants take four to six months. When we counter-offer, we will often throw in a few red herrings – things that we don’t really care about and can readily give away.
Negotiate and ask for more than you expect to get: For one of our lease renewal clients, we successfully negotiated a $3/square foot reduction, a tenant allowance and several months of free rent as well as the elimination of the personal guarantee and the deposit refund. You don’t have to wait until the end of your lease term, and if your landlord is stalling you, this generally means that he’s got a rent increase in mind for your renewal term.
For a free leasing CD entitled Leasing Do’s & Don’ts for Pizzeria Tenants, e-mail DaleWillerton@TheLeaseCoach.com.
Dale Willerton and Jeff Grandfield – 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 www.TheLeaseCoach.com.