In the past few weeks, COVID-19 has spread rapidly throughout the United States, forcing businesses to close their doors, requiring many employees to work from home, and causing a record number of people—6.6 million Americans—to file for unemployment during a single week. These uncertain times have many of us looking for ways to cut costs. If your business isn’t making enough money—or worse, has had to temporarily close—you may want to look into renegotiating the lease for your commercial space.
One of the main reasons tenants renegotiate a commercial lease is to temporarily or permanently reduce the amount they have to pay to occupy the space. Let’s discuss reasons you’d renegotiate, the types of renegotiations you can request, and how to go about making the request.
Why Would I Renegotiate My Lease?
Even if COVID-19 isn’t forcing you to consider renegotiating your lease, learning how to do it will still benefit you. When your lease is up for renewal, or if the market changes, re-evaluating the lease terms will benefit you in the long run. For example, you might request a higher tenant improvement allowance or a different lease length. Also, your business may experience a financial struggle unrelated to COVID-19 in the future, and knowing how to renegotiate your commercial lease could become a business-saver.
OK, those are all good reasons for a tenant to renegotiate, but why would a landlord let a tenant pay less money for rent? Remember, these uncertain times are affecting everyone. Your landlord is probably worried about finances and business as well. Also, if you have been a great tenant for years and have a good relationship with your landlord, your business may be hard to replace.
What Types of Renegotiation Options Do I Have?
Before you approach your landlord with your renegotiation request, you have to figure out what you want and make a plan to get it. Here are a few requests you might consider making in light of COVID-19 (or because of general financial difficulty):
If your lease is up, and you’re planning to make your renegotiation permanent, you may want to ask for a cheaper monthly rental payment. Especially if market conditions indicate you could get your asking price elsewhere, you may be able to get a landlord to agree to this. You can also ask for a temporary rent reduction with the promise to once again start paying the originally agreed-upon rate after a set amount of time.
If you aren’t bringing in enough revenue now, but you expect things to pick back up again down the road, you can ask for a rent abatement. A rent abatement is like a loan. It means you won’t pay rent for an agreed-upon amount of time, but when those months are up, you’ll back pay the rent in full, sometimes with interest.
Partial rent abatement
You can also request a partial rent abatement, meaning that you’ll pay, for example, only 50% of the full rental price for the next three months, and then you’ll later pay back the other 50%, sometimes with interest.
Subleasing your space in the building is an option, too, if another company can use the space while you’re not occupying it or if you have extra office space your business isn’t utilizing. Many landlords allow sublessors provided that doing so doesn’t conflict with lease terms of other tenants of the property.
How to Renegotiate a Commercial Lease
Now that you know why you might be able to renegotiate and have become aware of some renegotiation options that you have, let’s discuss some tips for how to approach your landlord and make the request. Be sure to approach your landlord in a timely manner with confidence, professionalism, a plan, a backup plan, and an honest desire to meet halfway.
- Say something early: If the end of your lease is approaching, or if business isn’t going well, speak up now. Don’t suddenly spring a request for abatement on an unsuspecting landlord. You have to leave time for a second renegotiation, if necessary, and you certainly don’t want to seem unprepared.
- Call on the phone instead of emailing: Meeting in person, shaking hands, and exchanging papers is nearly always the most promising start to a renegotiation that meets everyone’s needs. But if that’s not possible, go for a phone conversation rather than an email. That ensures each party is on task and hearing each other’s tone. Also, there’s always a chance an email can be ignored or missed.
- Have the right attitude: Whatever platform you use to communicate with your landlord, be sure to approach with confidence and professionalism. Hopefully, you already have a good relationship with your landlord. This is your opportunity to remind him or her that you’re a valuable tenant who is trying to find an option that works best for both parties.
- Do your research and know what to ask for: Lots of tenants go into a renegotiation with no idea what they want or even what they can request. Don’t go in with vague questions like, “What can you do to help?” or “How much of a rental reduction can you give me?” Decide whether you want a rental reduction (either permanent or temporary), an abatement, permission to sublease the space, or something else. Have all the paperwork ready. If you’ve done your homework, the landlord should only need to say “yes” and get some signatures on the new contract.
- What to include in your proposal: You should explain the reasoning behind your request. If market research indicates that tenants leasing similar properties are getting better rates, show the data. If your business simply cannot make ends meet for the time being, demonstrate that. Include your business financial statements from the past year, your current financial statement, a specific proposal, and if applicable, your business plan to bring in more revenue and pay more for rent in the future.
- What to do if the answer is “no”: If the answer is “no,” you have to be ready with your backup offer. This is a negotiation, after all, so it may take several tries to make a deal. If you have trouble making an agreement, you may want to seek outside assistance from a tenant broker. Even better, you may want to ask one for insight before you even begin the renegotiating process.
Getting Help With Your Renegotiation
Whatever you do, don’t let the landlord’s real estate agent mediate the discussion. You will want to gather advice from and work with a tenant broker who is on your side. Contact us to speak with a professional tenant broker today.