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How to Renegotiate Your Lease
Are you paying too much in rent?
Have you tried negotiating your rent with the landlord but had no luck?
If so, read this article on what you can do and your chances of success.
Why would the landlord lower my rent if I am in the middle of my lease?
The landlord probably doesn’t want to lose you as a tenant. If you signed your lease more than a couple years ago, then you are probably paying over market value for your space. If the landlord loses you as a tenant, they realize that it may be difficult to replace you.
Reasons the landlord may lower your rent include the following:
- If the landlord doesn’t lower your rent, you may be forced into bankruptcy.
- The business is break-even or barely profitable.
- You have approached the landlord with a specific proposal on the amount of reduction.
- You have a plan of action to reinvest the savings back into the business to increase the revenue and profitability of the business.
- The landlord believes it may be difficult to replace you as a tenant.
- The landlord is not under a lot of pressure from their financing source and is not late with their payments. (Remember that they may be getting pressure from the bank, too.)
- You have a good relationship with the landlord and have been a long-term tenant.
- The person you are dealing with has the authority to make the reduction.
Reasons the landlord may not lower your rent
- You are wealthy or have significant savings to keep the business open, and the landlord knows it.
- Your business is very difficult to relocate.
- The space is very valuable and you could easily be replaced as a tenant.
- Your business is profitable.
- Your sales have not significantly decreased.
- You have not presented the landlord a gameplan for improvement.
So how do I approach my landlord and try to reduce my rent?
You approach the landlord using plain common business sense. You explain (in writing) that the business can barely continue without the landlord’s help. Your package should include past years’ financial statements, a current financial statement, a personal financial statement or balance sheet, a specific proposal, and a mini business plan. You approach the landlord very tactfully, explain your case, and leave them the documents to take it into consideration. If they come back with a no, you come back with more information and a new proposal. You do not take a no until you have exhausted all your options.
How much can I reduce my rent by?
This varies wildly. It just depends on how the numbers work out and also depends on the landlord’s financial position and how much they can afford to reduce it. I have seen reductions from 10-50%. The bottom line is that, it is a negotiation between you and the landlord, and the numbers must make sense.
What is the difference between a deferral and an abatement?
A deferral means you must pay back the reduction (like a loan). An abatement means that you do not have to pay the reduction back. Most of the time, I see landlords proposing a deferral. I explain to them that the scenario sounds great in theory, but will only be causing problems later on. Later on when we expect the business to be profitable, the tenant will then begin paying back the money and will again be in a low to negative cash flow situation.
Any other words of advice for me?
Yes, don’t get mad, and shoot and kill the landlord. This is a possible and albeit a very innovative workaround but could have some minor repercussions (life in prison, death sentence, retaliation by family members, etc.). Use this as an absolute last resort and have escape plans, contingency plans, a getaway car, and plenty of bullets. Jokes aside, this has already happened a few times this year, once here in Los Angeles where I am based. It is a very sad situation and shows how much stress business owners can be under. Stay cool and calm, and base your negotiations on facts.
How long do the negotiations take?
This depends on the landlord. If they are a big, national, publicly traded company with layers of management, then you can expect the process to take one to three months. If it is a small, local individual landlord, then you may be able to work out a solution in a day.
How long will the landlord reduce the rent for?
The landlord will likely make the reduction for less than a year, probably about six months. At the end of the period, you should simply approach the landlord again and ask for an extension. Because the economic situation is difficult to predict, it is unlikely the landlord will commit to an extended period.