Aside from saving funds, knowing how to renegotiate a lease can help you gain additional benefits. Negotiating a commercial lease can be tricky. Improper negotiation styles lead to missed opportunities for the best possible real estate deals. You may also find your business struggling to pay rent, immersing in unnecessary expenses, or feel after a commercial lease audit that the terms of your agreement are unfair.
Fortunately, there are many tips to renegotiating your commercial lease and help your business better achieve its financial goals. This guide can explain the best ways to go about your meeting with the leasing manager, giving you the most optimized outcome.
What Does Renegotiating a Commercial Lease Mean?
A commercial lease is a binding contract between a landlord and a business. Many businesses choose to rent, rather than buy, real estate space to decrease their overall expenses in the early days of owning a business. Tenants might choose to renegotiate their lease for a number of reasons including the following:
- Your business or market has changed drastically, affecting your anticipated profits and your ability to make the space work.
- You unexpectedly had to close your business for some reason. For example, natural disasters or pandemics could force the business to temporarily shut down.
- Your landlord is, for whatever reason, unable to uphold some of the terms of your lease.
If you know or suspect that you will need to renegotiate your commercial lease, start talking to your landlord as soon as possible. Keep those lines of communication open. Let your landlord know where you’re struggling and what you’re struggling with. Many landlords would rather keep a tenant in the building than have none, since it can help lower their overall costs. As a result, they may be willing to work with you.
How to Renegotiate a Commercial Lease
Both parties in the leasing contract will try to achieve the best outcome for their end. You, the renter, will have an upper-hand in the negotiation by being prepared and confident. There are several strategies you can apply to help you renegotiate your lease.
1. Ask for a partial rent abatement.
Many businesses have experienced temporary shutdowns or changes in their income as a result of government mandates or changing consumer behaviors. Your landlord may not be able to afford for you to pay no rent amid a crisis, but many landlords will work with you on partial payments. Rent abatement is a short-term solution that will temporarily reduce the burden of rent during a difficult period.
2. Consider subleasing.
In some cases, you might struggle to keep your business up and running through a temporary tight patch. You do not want to give up the commercial space your customers are familiar with, but your bottom line simply will not support those payments in the current market.
Subleasing can help you survive a temporary rough patch, whether you sublease the entire space or rent out a portion of that space to another business owner. Check the terms of your lease agreement to determine whether you need to consult with your landlord before subleasing your commercial real estate space.
3. Revisit the terms of your lease agreement.
Most of the time, landlords prefer to keep tenants in their commercial real estate properties for as long as possible. For landlords:
- Changing tenants can mean an expensive search, not to mention costly renovations.
- Changing market conditions may leave them struggling to pay for property expenses or to find another tenant.
Fluctuating market conditions affect your business as well so revisit the terms of the lease agreement with your landlord during challenging times. Discuss the following:
- Your rent payments.
- The lease term.
- What your company needs to keep your office space, store space, or other commercial property.
During times of immense market change, you may find that it’s easier to renegotiate those terms, especially in exchange for an expanded lease term. Remember, your landlord is dealing with the same market uncertainty you are, which means they may be willing to change your rent in exchange for the assurance that you will stay in the property longer.
4. Consider a temporary income sharing arrangement.
Both you and your landlord need to generate income from the space you leased. For many companies and private landlords, that’s not as easy as it used to be. Discuss a temporary income-sharing arrangement with your landlord. Offer to share a percentage of your profits in exchange for reduced or eliminated rent.
It can help generate funds for both of you while reducing some of the costs you may face in the midst of a crisis. Depending on your situation, you may want to prepare for some negotiation regarding the percentage of your profits your landlord can expect to collect.
5. Hire someone to represent you during the renegotiation.
Working with an expert is critical for business owners who need to revisit their leases. Experts have been on both ends of commercial lease agreements. They often have years of experience in the field, including awareness of the latest industry trends. By working with a real estate agent, you can often manage lease negotiations more effectively. The agent can help you:
- Request reasonable changes to your lease that reflect current market conditions.
- Provide you with an understanding of the needs of your landlord.
- Keep emotion out of the equation, allowing for smoother negotiations.
- Provide an additional perspective that can help you build an effective backup plan or give you a better idea of your renegotiation options.
Successful renegotiations yield the best financial terms when you take the time and effort to prepare for the meeting. You should consider all of the five listed strategies for your particular situation. Get in touch with a commercial real estate broker if you are not confident enough to negotiate the lease on your own. They can provide a better look at overall market changes as well as advising you about how to approach your landlord to arrange for a rent reduction or better lease terms.
Let an Expert Help You Renegotiate a Commercial Lease
Many entrepreneurs have great ideas and big plans that will help them get through these difficult times. Take full advantage of every opportunity by renegotiating the terms that allow you to use your current space.
Hiring someone to represent you in a lease renegotiation can guarantee higher returns. Contact The Genau Group today to consult with an expert about renegotiating commercial leases or other commercial lease questions you might have.