Are you a franchise owner stuck in a lease with unfavorable terms? If you have a solid plan and the right market conditions, you may successfully renegotiate an unfavorable lease. Let’s take a closer look at how.
Do Your Research
Before you attempt to renegotiate your lease, do some research on the current commercial real estate market. If you signed your lease a few years ago, how have the rental rates changed? Are tenants paying more or less than they were three or five years ago for similar spaces? If rental rates are depressed in your area, then you have a solid foundation for asking for a lower rate. On the other hand, if rental rates have increased and the value of your space has increased it may be more difficult to renegotiate your lease. That said, there are other mitigating circumstances that could help you get a rent reduction.
- Current construction. Is there increased noise and pollution due to construction? If construction is impacting you and your customers, you may successfully argue for a rent reduction. This could also be the case if construction has reduced the number of people coming to your business especially if you can show that construction has reduced your revenue.
- Future construction. If you know that there is major construction planned for the future, you may be able to negotiate a rent reduction because of anticipated disruption to your business.
- Structural damages. If there was a natural or manmade disaster that caused damage to your building, you may be able to negotiate at least a temporary rent reduction depending on the extent of the damages and the length of time your business will be impacted.
Extend Your Lease
When you step into your landlord’s office to renegotiate your lease, you must be prepared to give something in exchange. Offering an extended lease could be enticing to your landlord if it’s a difficult market for finding tenants. An extended lease can also offer the benefit of stability for your franchise if you plan to be there long-term. But before signing on for an extended lease be sure that you’re ready for the commitment and try to assess if your rental rate is likely to remain reasonable throughout the life of the lease.
Put Time On Your Side
Don’t wait until the last minute to renegotiate an unfavorable lease. While it may only take a few days to a few months to renegotiate your lease, landlords often respond slowly. If renegotiation is unsuccessful, it could take six months or more to find a new place to lease if your renegotiation goes south. To give yourself the gift of time, plan to begin your renegotiation at about a year before the end of your lease.
Be Prepared To Walk Away
Before you sit down to renegotiate your lease you must have an exit plan. What will you do if the landlord decides not to renegotiate your lease? You must be prepared to move. Before you talk to your landlord do your research on open spaces and find someplace that may be a good fit. You may even begin talking to the owner of the ‘plan b’ space BEFORE you begin renegotiating your current lease. Coming to the table with options will give you the confidence you need to demand more favorable terms.
If you’re thinking of renegotiating your lease, be prepared with data and options for moving to a new place with better terms.