How rental contracts of commercial spaces are being negotiated

​The past few months had seen the rapid and aggressive spread of the novel coronavirus around the world. The global pandemic has forced people into their homes and away from their businesses. More than half the world's population comes under travel bans, curfews, and restrictions. Most companies have had to shut their doors and ask employees to work from home. In the US alone, over 6.6 million people have filed for unemployment within a week. During such times, most companies are trying to cut their costs, and one way to do that is by renegotiating the lease on your company's commercial space. Here's a look at how the current situation has forced people to negotiate the rental contracts for their commercial and retail spaces.
 
Why Renegotiate Your Lease 
The COVID-19 pandemic isn't the only reason you should renegotiate your lease. Knowing how to do so is an essential skill that will benefit you quite a bit. The last few years have witnessed an economic recession of sorts, and several industries have fallen prey to it. During such difficult times, being able to cut your costs is the best way to save your business. Re-evaluating your rental agreement is also required when you renew your lease, if the market undergoes changes or if your business is struggling. One common question that everyone has is, "Why should my landlord let me stay for less money?"
 
Remember that such difficult times affect everyone. Therefore, it isn't just you, but also your landlord and family too, who are worried as a result of this issue. Therefore, ensuring they have a loyal and good tenant for longer periods is in their best interest. In the end, getting less money for more extended periods at least ensures financial security. 

​What Renegotiation Options Do You Have?

Rent reduction
In case your lease agreement is about to expire, you can try to ask for negotiation for cheaper monthly rent. This is especially true if you know you can get that price somewhere else due to changes in the market. In case you are battling financial struggles, you could also ask for a temporary rent reduction as a means to help you through the crisis.
 
Rent abatement
In case the pandemic or some other reason has hit your business very badly, you could ask for a rent abatement. In this case, you tell your landlords that you will not be paying rent for a specified period. However, after this stretch, you will pay the full amount, and sometimes even a small interest. If you expect your business to pick up soon enough, you could also ask for partial rent abatement, wherein you pay only 50% of the full rent.
 
Sublease
Subleasing your commercial space means you open up your building for some other company to set up shop. This is an excellent option if you do not occupy the space for a few months or have some extra space you are not utilizing efficiently. Most landlords are okay with this as long as the new tenants are okay with the terms of the rental agreement.
 
Revenue Sharing
In some cases, retailers who do not want to pay a very high rent can choose instead to opt for paying a percentage of their revenues as rent. This model is extremely popular in the US, and in Europe, as it helps in easing the pressure on the retailers. It helps in minimizing risk, as there is no flat lease rate or monthly rental payment. In some ways, it makes the developer themselves a retailer as they have a share of the revenue generated by the retailer. Landlords can ask for a percentage of sales, a stake in the company, or a combination of rent and sales as their payment.
 
Other changes you can request include;

• moving to monthly rental payments from quarterly payments
• linking some of the rent to the tenant's turnover from business
• Reducing repairing duties and obligations
• adding and removing break clauses
• Extending the lease for a lower rent
• reducing the size of the commercial space
• Lease revision on a month-to-month basis
• Promise to renovate the commercial space
• Extra security by the tenant, such as indemnity or guarantee
• Ask for collateral mortgage
• Ask for audited statements and fiscal records of the tenant

 
How to Renegotiate a Rental Contract for a Commercial Space

1. First and foremost, you should explain to your owners why you have to make such a request.
2. Let them know about your struggles, and how your business is doing so that they understand the urgency of the matter.
3. Next, tell them about your proposition, and request a negotiation using any of the techniques listed above.
4. In case you want a rent reduction, make sure you have enough data to make it clear how the market valuation has changed.
5. Also, if you ask for an abatement, show them via your data why your business is finding things difficult. Also, talk them through the steps you are taking to keep the business afloat and why you think you can start paying again after the specified time.
6. Next, try to drive home the point of how you have always been a good tenant. Try to get them to remember how you have always paid your dues and your cordial relationship with them.
7. Also, ensure you have the paperwork already done or planned out so that once you have permission, you can get it in writing as soon as possible.

 
Tips on How to Renegotiate Your Commercial Lease 

• Make sure you approach your landlord only after doing the required research.
• Meet them with the utmost confidence and professionalism so that they feel assured and safe. Also, never be overtly defensive or confrontative.
• Make sure you go into the meeting with an open mind, and a desire to meet halfway, in case they have their reservations.
• Do not leave things for the last minute. Instead, speak up as early as possible so that your landlords don't feel like you are dropping a bomb on them at the last minute. Leave enough time for a second renegotiation, in case it is necessary.
• As far as possible, try to go about it personally, via a call or by meeting in person. Avoid emails as that makes the meeting very impersonal, making it difficult for you to be convincing.
• Do not go in with vague ideas and doubts. Instead, do your research so that you can counter their points with the right data. Also, make sure you have all the paperwork done up so that you can get it done as soon as possible.
• You can also hire a broker to do the negotiating for you if you think that will help. This can particularly be helpful if you do not completely understand the market.
• Make sure you have a backup plan in case they say NO!

 
 
In a perfect world, everyone would understand someone else's position without having to say anything. However, since that is not the case, we all need to negotiate when hard times befall us. But that isn't always a bad thing as it might prove to be what helps us out the most. At the end of the day, we are all humans. People understand that national and global economic situations change at unprecedented speeds. Everything from economic slowdowns to personal crises can affect a tenants' fortunes. However, you can get out of such tight spots by being smart, doing your research, and renegotiating your lease.

Authored by: Dhivya Naresh