How to Negotiate a Lease Renewal Rent Reduction for Franchise Tenants

Dale Willerton and Jeff Grandfield

Date

Jan 18, 2016

Get Organized and Do Your Homework

Start early for maximum gain. Nine – 12 months in advance is not unrealistic. In most cases, you should not need to exercise your Lease Renewal Option Clause provided there has been a dialogue with your landlord and it has been established that the landlord wants you to stay for another term.

Prepare for the Battle

Reviewing the lease document signed five or 10 years ago is routinely our first step when we negotiate a lease renewal for a tenant. Initial terms and conditions you have agreed to (including a personal guaranty, letter, of credit, deposit, etc.) can now be renegotiated during the lease renewal process. Tenants simply exercising their lease renewal option clauses often are met with an increase rate and have no opportunity to negotiate on other important terms.

Talk to Other Tenants – Specifically, Tenants in your Building

Your neighbouring tenants can be valuable sources of information. We often interview them to ascertain their future plans (are they renewing their own lease?). Tenants not renewing and leaving the property will create more vacant space for the landlord and you will have more leverage.  After renewing a lease, your neighbour may be paying more rent. This rental rate will likely factor into the rental rate the landlord expects you to pay.

Create Competition for your Tenancy

Remember, you are the landlord’s customer and other landlords will also desire your tenancy. At The Lease Coach, we like to create competition for our tenant clients. We actively seek out alternative locations and solicit lease proposals from other landlords. Even if you don’t want to move, showing your current landlord your collected offers can give you an edge with renegotiating your own lease.

Negotiate, Negotiate, Negotiate

We find that the landlord and/or landlord’s agent, rather than the franchise tenant, negotiates to win the deal. How can you make the deal work better for you? Try thinking outside the box. For example, you could start negotiating at $15.00/square foot and go up to $18.00/square foot over time, rather than just a flat rate over the entire term. While we are negotiating, we will physically reveal the other offers which have come to me from other locations. Even if it is a more expensive deal, remember, that if you leave, the landlord gets a vacant property. It is extremely expensive for a landlord to replace an existing tenant. By the time a landlord pays real estate commissions (which could be $40 - $50,000), change the look of the unit, put in tenant allowance money and so on, it gets very expensive.

Landlords often offer lease inducements for new franchise tenants moving in. Free rent and/or tenant allowances may motivate a tenant to sign. We believe that similar (or even better …) lease inducements should be offered for tenants renegotiating their leases. After all, you are the repeat customer and have paid rent on a regular basis.

Counter offering is a major part of negotiating a lease renewal rent reduction. Remember, this is not an event … this is a process. We stand firm for our tenant clients and do not give in too quickly – sometimes waiting up to six months before signing the deal!  Even if you don’t have that much time left on your lease, usually you can hold over without paying extensive penalties. Compromising may become necessary. When we counter offer, we will often throw in a few red herrings – things that we don’t really care about and can readily give away.

Remember to negotiate assertively for a lease renewal rent reduction. Isn’t that money saved better in your pocket than in your landlord’s pocket?

Dale Willerton and Jeff Grandfield - The Lease Coach are Commercial Lease Consultants who work exclusively for tenants. Dale and Jeff are professional speakers and co-authors of Negotiating Commercial Leases & Renewals FOR DUMMIES (Wiley, 2013).  Need help with your new lease or renewal? Call 1-800-738-92021-800-738-9202 FREE, e-mail DaleWillerton@TheLeaseCoach.com

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