Sure, what tenant doesn’t know that now is a good time to try to renegotiate the rent, but unless you know what you’re doing, you probably have as much chance of getting everything you could as successfully taking out your own appendix. It’s not that you’re not a shrewd business person or a pretty tough negotiator, it’s just that you have a very weak hand.
For one, all of your eggs are in one basket. You can’t just tell the Landlord that you’re simply going to close the doors–he probably won’t believe you, and you’re still liable for the lease if you do. This is your business; you’ve got your blood, sweat and tears in it, maybe even your house and your personal guarantee that doesn’t go away when you close the doors. We can do this, but it’s no piece of cake.
So let’s get to work. The goal is to lower the rent so you can stay in business, but there are other objectives, too:
- Eliminate or Defer Future Rent Increases. These were negotiated in an economic environment when everything was going up. Today, everything is going down, so why continue to have your rent go up 3-5% every year?
- Reduce Common Area Maintenance Charges and Assessments. These go up every year, too, and often have additional surcharges such as ‘management fees’, ‘supervision fees’, or ‘administrative fees’. Landlords don’t like to discuss these, and your biggest obstacle is probably the property manager or broker handling the center—more about this in a minute.
- Stop Increased Tax Pass-thrus. What’s this? It’s your pro-rata share of Taxes, Insurance, and Maintenance that you are billed for each month. We already talked about Maintenance (CAMs), but every time the Landlord’s property tax bill goes up, so does yours. The lease probably says he’ll challenge the taxing authority on these reassessments—sure.
- Remove Onerous Lease Language. Most tenants sign the Landlord’s lease as written. Guess who has the advantage? There are provisions that dramatically affect your rights and duties here, so let’s put these in the negotiation pot, too.
- Obtain Options. Hard to think about options to extend your lease when you’re underwater and asking for rent relief, but this is the ideal time. With the hopes that you can restructure your lease economics to match your business economics, let’s get an option to stay another 2-5 years at the new rent. You’ll probably have to agree to an increase, but it’s an option: you can always renegotiate it.
OK, that’s just a start. The biggest obstacle you’ll have—other than the property manager, lawyer, and 50-page lease—is not knowing what to ask for. I’ve seen too many cases where the tenant gets a one month rent abatement that is tacked on to the end of the lease and thinks he’s won. We need to do major lease surgery, and unless you’re handy with a lease scapel and are up to date on the latest leasing journals, you’re likely to cut an artery—or worse.
Who can help? Well, not the property manager—they work for the Landlord. Not a typical commercial real estate broker—they usually work for Landlords, too. A lawyer? Who can afford $500 per hour?
You need someone who knows the ropes from the tenant’s side, and not just a “tenant broker”. You need someone who has experience from your side of the table, and can work with you on a win-win result for both you and the Landlord. They’re rare.
Jeff has 25 years of experience as a corporate real estate executive with such companies as McDonalds, 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.