OK, you can pay the rent. Business isn’t great, but it’s holding its own. You’re one of the lucky ones, so what’s the right tack to take now with your landlord so that you can use the macroeconomic environment to your benefit? Here are some things to consider:
- Defer Scheduled Rent Increases
Many leases entered into during the last five years included annual increases based on the consumer price index (CPI), fixed increases (3-5%), or percentage rent (5-7% of gross sales—you pay the higher of this or the fixed minimum rent in the lease).
You don’t want these—but it’s is unlikely you will be able to renegotiate a “flat” lease with no escalations at all during the primary term. So let’s see if we can:
1. Push some of these increases out until later in the lease,
2. Change the interval (every other year instead of annually),
3. Lower the rate (2% instead of 3%),
4. Eliminate the CPI index and replace it with a fixed increase (CPI is the ARM of commercial leases—can we say Countrywide, Lehman Brothers, AIG. . . .?)
- Audit Common Area Maintenance Charges (
Here’s another huge area that is difficult to attack. Why has your
Your lease probably gives you the right to audit these charges each year—but no one does. It may be the right time to seek the services of a professional
- Renegotiate Onerous Lease Terms
There’s lot’s of these, and unless you had a real estate attorney of professional commercial lease negotiator review your lease before you signed it, you probably agreed to at least some of these, and , trust me, the Landlord has put them all in your lease. Now’s the time to get rid of them, or, at least, make them less one-sided.
- Add Some Provisions In Your Favor
They actually have these? You bet.
1. More flexible assignment and subletting conditions that will help you if you sell the business;
2. Caps on increased tax assessment pass-thrus as a result of sale of the shopping center;
3. Limits on
4. Restrictions on what the Landlord can do (and charge you for) if he feels you aren’t maintaining the premises;
5. What you can do if the major tenant goes dark. . . .and a lot more.
Evaluate if you need help with this. If you know your way around all these issues, then maybe you can tackle the negotiations yourself, but there’s an old proverb: “The lawyer who represents himself has a fool for a client. . . .”
Be selective on where you go for help. Property managers and commercial brokers represent landlords, and are not likely to rupture these relationships on your behalf. Lawyers are good — but expensive. Look instead for non-commissioned professionals who have experience representing only tenants and franchisees, and who charge you based on results.
When it comes to renegotiating your lease, let’s get it right — right from the beginning!
Jeff has 25 years of experience as a corporate real estate executive with such companies as McDonald’s, Blockbuster, and Quiznos. He has started TheRentNegotiators.com to work exclusively with retail tenants and franchisees in renegotiating their leases at a very reasonable fee schedule that is entirely contingent on results.