How to Renegotiate a Commercial Lease

How to Renegotiate a Commercial Lease

The world is trending in very uncertain times in the wake of Covid 19, meaning that everything in life has to operate differently. People are encouraged to stay indoors, avoid crowded places, and keep a social distance. These rules’ effect is that brick and mortar businesses have experienced slowed customer flow, significantly reducing revenue.

Most ordinary businesses have been affected because people don’t have the spending power they had pre-Covid 19. When revenue is not flowing, salaries, rents, and other expenses have been affected. Some businesses were forced to close down, and the lucky ones are surviving from hand to mouth. Salaries and most business expenditure has been slashed and only the most necessary expenses are catered. Many businesses are struggling to pay rent and risk closure. Before this happens, is it possible to renegotiate the lease?

This is an area most companies would like to explore to ease the pressure of paying rent when the income has dramatically reduced. The most affected industries were hospitality and entertainment. Still, other sectors such as manufacturing, real estate, and service delivery have started feeling the effect, but sadly, rents and mortgages have to be paid regardless of how tough it gets. However, when planning to renegotiate the lease, remember that the economic downtime has affected everyone, including your landlord. It is highly unlikely that he will find a ready tenant if you move out; therefore, he may be willing to listen and negotiate a more favorable lease agreement rather than let you move out.

With this understanding, you can confidently approach him or your agent with a proposal.  If you want to discard the old lease and get a new one, here are some suggestions to help with the negotiations.

Communicate Often

You can always predict when you are likely to struggle with paying rent, and it’s best if you notify the landlord in advance. Waiting until you get late on payments and the landlord starts making demands is not the right way to handle it. Schedule a meeting or call, then explain the situation. If you have an outstanding record of making timely payments, your requests may be accepted. A meet up is always a better way of expressing your concerns than putting it down in writing.

During the meeting, explain why you cannot pay rent on time, the grace period you want to be given, and how you intend to clear the arrears.

Try to Sustain a Status Quo

Even if times are hard, continue running the business as usual. Don’t close down but operate as you communicate with the landlord and negotiate the way forward. If you close down, it means that you are no longer interested in the premise, and chances are, you might be kicked out or a lawsuit filed against you. During this time, go through the lease agreement to understand the conditions and develop a clear negotiation plan.

Request for a Partial Rent Reduction

Instead of not paying anything or closing down the business, you may request to pay part of the rent for some time until the company is back on its feet. You can ask to pay 50% or 75% of the rent for three or so months but promise to clear the remaining part after a specified time. This arrangement is workable if you can foresee when your business will be back on its feet again.

Defer the Payments

If you are totally crippled financially, rent deferral can keep your business open without the pressure of monthly rent payments. Here, you agree not to pay the rent for a specified amount of time but clear all the arrears later. For instance, you can request 3 or 6 months’ rent deferral, then after that, make partial payments for the arrears accrued together with the monthly rent. If you have a long-standing relationship with the landlord, this arrangement may work.

The above arrangements can work if you are an existing tenant and have a good relationship with the landlord or the real estate agent. However, if you want to lease a new building, you can still negotiate the terms to favor you. It would be best if you didn’t take the counteroffer as the final one but work through it until you are satisfied. Before making a counteroffer, you should have the current terms of the lease agreement to guide you.

How do you Negotiate a New Commercial Lease?

Almost all landlords expect a counteroffer from potential tenants, making them set the rent amount slightly higher. When proposing the offer, make requests based on your current needs and future expectations. For the rent amount, start negotiating at least 15% lower than the asking price.

Negotiate the Lease Term

This depends on your business’s nature and how long you are willing to stay at the premises. Most lease agreements extend for at least three years, but you can negotiate for a shorter lease with the promise of a small hike in the rent if you stretch it further. At this juncture, you can negotiate lower penalties for terminating the lease prematurely.

Negotiate for Free Rent

You may request for the tenancy agreement period to start after the occupancy date. For instance, you may ask to move in on 1 January, but the rent due date to be 1 February. If you have a one-year lease, you will have an extra one month on the property. Another consideration is the period it will take to fix the property before moving in.

For large fixtures, you can request up to 120 days. This cushions you from rent payment for the time you will be preparing the premise for occupation. Alternatively, the landlord can cater to the fixtures, and then you can start paying rent from the date of occupancy.

Protect Your Interests

You can negotiate for a cure period, which is time given to rectify any breach of the contract. Not having one means you can be sued or penalized for late rent payments even when it’s overdue with one day. Another important request is that the landlord may not lease to a competitor, which protects you from unfair competition. Also, if your attraction to the building is because a major tenant can attract traffic to your business, request that you, too, maybe be allowed to terminate the lease if he moves.

Negotiate for Perks

You may negotiate for free parking space for your employees, wifi, and the responsibility for the building’s HVAC system. These may be minor considerations but may save you hundreds of dollars each year.

What Happens When You Walk Away from a Commercial Lease?

If you walk away from the premises, you may be forced to pay the rent for the remaining part of the lease agreement or until the landlord gets a new tenant. However, if the landlord is in breach of the contract, you may walk away and not be fined, but this may need some form of legal aid.

How Do You Write a Letter to Break a Commercial Lease?

Typically, a lease termination letter is written 30 days before the lease expiry date. You should include the property address, the date when you want to vacate, when to hand over the property keys, and request a property inspection. You should also include a forwarding address and your contact information. If you are making an early termination, indicate the intent and reasons as well.

How Do You Negotiate an Apartment Lease Renewal?

If you like your current apartment, but the lease is coming to an end, these tactics can help you stay and avoid a hefty rent increase.  It’s essential to start the negotiations early enough and notify your landlord of your intent to stay on.

Remind Him of How a Good Tenant You Have Been

If you have been paying rent on time, follow the rules, and live in peace with the neighbors, you are an asset your landlord would want to keep for longer. You can even request to be paying the rent earlier than before or pay in lump sums. Alternatively, you can offer to extend the lease for 2 to 3 more years.

The landlord may agree to this arrangement rather than let you vacate then go through the stress of fixing the house for a new tenant.

Get Helpful Property Information

Knowing how much properties in the neighborhood are worth will give you an idea of how much you should negotiate for in a new lease. If the landlord insists on an increase, you may agree but on condition that he fixes or offers some perks such as painting the house.

As you will find out, negotiating with the owner is easier and faster than going through the estate agent. It is also easier to deal with small companies or individual homeowners than massive real estate companies. Nevertheless, with the right approach, you can get close to the rates and services you wish to get from the contract. It also pays to get a lawyer to negotiate for you the terms or advise you on how to go about it, especially when letting a vast business space.