Even as we climb out of the pandemic, lots of businesses and retailers are still hurting. One of the first ways they look to conserve costs is to rethink their office or retail space (read: get out of a lease.) It is at times like this, when businesses are financially stressed that they begin wondering if their lease makes sense, and that’s when the dance between landlords and tenants begins.
The fact is, landlords and tenants are in a symbiotic relationship; they need each other. Landlords have their own expenses to pay, and having tenants is their business. Tenants need space in order to conduct their businesses. From the perspective of tenant looking get reduction in term or reduction or to terminate the lease, it’s the job of landlord to say no. Everything is open for negotiation; everything is negotiable. We believe you have to have the right approach. What can we say to a landlord to convince him that it is in his best interest to work with us? You can’t force someone to negotiate with you, but can convince them that they should talk to you. You need to understand leverage and how it works.
Tenants have negotiation leverage if there is the risk of a bankruptcy insolvency. In such cases, landlords would get no recovery. Then there are negotiations where a current tenant has the likelihood of recovery. So, your best approach is “work with me now or you will wind up with a vacancy.” Whichever approach you take, you come up with that makes sense for the landlords. Remember, they are bombarded with requests for concessions. A landlord is thinking, “Is this a tenant worth working with, or not?” Maybe pre COVID, business was struggling maybe not worth the effort. Your job is to convince that landlord that you’re worthy. It’s a delicate conversation.
The reality is, there are two approaches when dealing with landlords: beg and whine or prepare a cogent presentation. Show where you are, where you’ve been, how you’re climbing out of distress. At Keen-Summit, when representing a tenant, we put together a book to tell your story in a concise fashion; we attach financial information and paint a good picture.
If the market conditions are such that rents are decreasing, that’s where tenants have leverage over landlords. Even if a landlord claims to have potential tenants lined up, you still have to paint a scenario that says: If we vacate the space, you have a vacancy and it might last a long time. That means you won’t have the income. And even if you find a new tenant, there will be a cost to that: brokerage fees, improvements, and free rent thrown in. Bottom line, you say, having a vacancy is an expensive proposition. Then you can paint another picture: show the landlord where you are now and where you expect to be down the pike. That’s for starters. Retailers have other options that can be based on revenue.
The most important advice is to keep the lines of communication open. Aim to have productive conversations. Let the landlord know you’re being proactive and are being a smart business person and trying to address the issues head on.