When renegotiating a lease with your landlord you want to start off by taking a collaborative, team-like approach. You and your landlord are essentially working together to come to an agreement that is beneficial to the both of you, so you want to make sure that you are working together. At the same time however, you need to be in the driver’s seat, meaning you want to drive the negotiation in your favor. Negotiating from a position of strength will help achieve this. Showing the landlord that they need you more than you need them will help you get there. This is easier in times like the ones in which we are going through now. A tenant can realize his position of strength based on the market. Nowadays after the real estate market took a hit from the COVID-19 pandemic, landlords are more willing to retain paying tenants and not have to go through the rigor of finding new reliable tenant replacements. Arming yourself with this type of information will help you successfully renegotiate your lease.
Aside from the method and tactics with which you negotiate, the following are examples of specific business-related points and concession requests that you may find helpful making to the landlord and negotiating upfront:
- Max forgiveness on any arrears coupled with a repayment plan.
- If you owe your landlord back rent or other amounts due under the lease, being up forthcoming by proposing a settlement plan is very beneficial to both you and your landlord. Doing so may help to spread out repayment of any arrears over a longer time period (rather than having to make one, likely burdensome lump sum payment), which can potentially lessen your total liability for paying back past due monies to the landlord. A landlord would likely find this favorable because, although the monies are owed to them now, a future repayment plan will comfort them and help to ensure that they will be receiving payment of at least a portion of what is currently owed now, with the remainder of the arrears being paid to them over time, rather than never. Because you have presented the landlord with an actual avenue for receiving some of the monies owed to them, they may, as result, be more inclined to forgive a portion of the arrears, rather than agree only to spread out the time period for repayment of the total amount.
- Use these modification negotiations to extend your lease term and/or add extension option(s) or right(s) of first offer/refusal.
- Now that you’re at the table with your landlord and renegotiating your lease, it would be a great time to negotiate other aspects of your lease. Extending your lease term can, in many cases, really help you in the long run. Assuming you are satisfied with the space you’re in, having the opportunity to continue operating in that space can really be beneficial for your business. Your customers will continue to know where to find you, the need to incur hefty moving costs is obviated, and the identity of your business that you have built over time within that space can be preserved. You can also better budget (and avoid having to forecast) certain future operating expenses for your business, such as rent and maintenance costs. For these same reasons, it would be a great opportunity to work in extra option periods, or to add one if none presently exist in your current lease. Option periods give you the right to extend the term of your lease for a specific amount of time at either a pre-stated, fixed rent schedule, or one based on what the fair market value will be when the option period commences (you, as the tenant, will likely want to push for the former, as the latter typically favors landlords). This ensures that you pay a reasonable price for a space that you chose to remain in without having to deal with the future real estate market flux. Even if the rent during any extension or option period gets based on fair market value, you’ll at least know that you won’t be overpaying for rent in the future.
- Try to reduce the amount of your base rent.
- Lastly, now would be a great opportunity to try to reduce the amount you pay each month as and for base rent under the lease. One of the reasons that you may be meeting with your landlord is because you have amassed some arears on rent that you were once able to pay but, due to no fault of your own, are now unable to. Reducing the base rent moving forward will ensure that you can make your monthly payments and not fall into default. Your landlord will also like this because it keeps a tenant in a space that they may otherwise have a hard time filling, and it ensures that the landlord receives a steady cash flow moving forward, albeit if it’s for a lesser amount than what they’d hoped (hey, some cash flow is better than none, right?).
For more information, or for help renegotiating your lease agreement, reach out to the knowledgeable real estate attorneys at KI Legal.
Founded by attorneys Andreas Koutsoudakis and Michael Iakovou, KI Legal focuses on guiding companies and businesses throughout the entire legal spectrum as it relates to their business including day-to-day operations and compliance, litigation and transactional matters.
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