In these uncertain times, the lease that you signed a few years back might not be a fit for your business's needs now. While most leases are binding documents, the reality in business is that you get what you and the other side negotiate. Your landlord might be open to renegotiating your current lease, or potentially negotiating a termination. Here are 8 tips to keep in mind before approaching your landlord:
1. Think Like a Landlord
To negotiate with a landlord, understand how they think. Most landlords want to collect the most money possible for the longest time possible. Usually, that happens when you pay your lease as agreed for its entire term. But that isn't always the case. Keep in mind that you may be able to trade time for money (or vice versa) -- remember, your landlord wants the most of both, and sometimes less of one but more of another is the best way to get that.
2. Read Your Lease
As you go into the process of renegotiating or terminating your lease, read it carefully. Your lease might have buyout provisions, or a fair market value clause in your renewal option (that could automatically drop your rent!), or liberal assignment and subletting rights that let you get out easily. While your goal is to renegotiate your lease, you still need to understand your starting point.
3. Get Help
Renegotiating or terminating your lease isn't a project to take on by yourself. You'll want to enlist the help of a real estate attorney to help you understand the legal implications of what you are doing and the help of a commercial real estate broker that specializes in tenant representation. Your tenant rep can educate you on market conditions, help you find alternatives, and strategize on how to get the most possible from your landlord.
4. Add Time
If you're looking to renegotiate your lease, one of the easiest ways to get the landlord to make changes for you is to add more time. If you're a good tenant and, even better, if you'll be hard to replace, most landlords will want you to stay longer. In exchange for some additional safe lease term (for them), they might agree to a period of free rent, to a rent reduction, or to lower rent escalations (for you). If you are under-utilizing your space, you may want to downsize the amount space you lease, with the option to expand in the future.
5. Sweeten the Pot
While adding time is one way to sweeten the pot for the landlord, it's not the only one. Would you be willing to take more space? Can you give the landlord the right to move you out early if they find another tenant? Are larger rent increases in the future in exchange for lower rent now an option? See if you can get creative to renegotiate your lease to better match what your business needs.
6. Buyout Your Lease
Many leases have provisions that let you buy them out. When you do this, you pay the landlord a to-be-determined amount to be let out of your lease. Your responsibility ends, and they get the space back to lease out to another tenant. If the landlord has another tenant to take over your space, they might agree to a low buyout amount. Conversely, if they don't see being able to re-lease the space soon, they might ask for something like the present value of your entire lease agreement.
7. Consider Subleasing or Assignment
One way to functionally terminate your lease without actually formally terminating it is to find someone else to take over your space. A subtenant pays you rent for the space so that you can use their money to pay the rent to your landlord, while an assignee is a tenant that takes over your lease completely. In either case, you will probably still remain responsible in case they don't pay, and if the rent you negotiate with them is less than what you owe, you'll be responsible for the difference. However, going this route may still cost you less than buying out your lease.
8. Wait for a Little While
Whether you want to renegotiate or terminate, time can be your friend. As your lease term gets shorter, you benefit in two ways. First, the total value of that cash flow stream to your landlord goes down, since there are fewer payments left. Second, the risk of you moving out and leaving the landlord with a vacancy becomes more and more present. Holding on to you (if you want to renegotiate) becomes more important if they don't plan to move you out for someone else, and terminating you becomes less expensive (since you're about to terminate anyway).
Here are a few other articles to check out:
The Perils of a Bad Lease Escalation Clause
4 Red Flags to Beware When Looking for a Tenant Rep
The Top 4 Business-Friendly Cities in Florida for Your Corporate Relocation
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