Lease Negotiation

[James2011]

My current lease will expire this year, so I will need to negotiate Lease Renewals. As everyone knows, business has been too slow and economy continue downside, so I like to get new lease as lower as it can be.
But shopping center owner is a big real estate company who owns and operates many big malls and S.C.
I need some advise from you. How to approach to get a better lease?
Obiously LL wants to get more RENT and Tenants want to pay less rent, but the property owner is LL, so tenant's only weapon is moving out. But I can't move out since this is the source of living and no other place to move.
My goal of negotiation is to get lower rent for new lease. What should I say and ask for LL? Do I need to answer the amount of new lease to LL?
How strong do I need to stand? Is it work like "I need $xxxx rent, otherwise I can't renew" things like that?
LL can simply say "take it or leave", right?
Do I need to ask what's LL's number? if I ask they will tell me?
What would be the effective approach to get a better lease?
Thank you,

[CanCanCase]

Renewal negotiations IN a renewal year? Are there any options for extension, or is this year the END of the lease contract?

Yes, landlord can simply say "take it or leave it." That's his prerogative as landlord/owner. You can simply say "take what I'm offering or I move out this year." It's pretty common for a business to end operations at a given location when the lease is up. Fast food franchises are usually franchise or corporate backed to guarantee the lease for 10 or 20 years. After that's up, it's often cheaper for the business to move elsewhere. We have 3 buildings in town which used to house a Taco Bell... there are also 2 (identical buildings) elsewhere which currently house a Taco Bell. After their first 15-20 year lease was up, it was cheaper to lease a different property (which would "build to suit") than it was to stay in the old location with the rent escalators, etc. built in.

For a laundromat business, moving is much more difficult, so the landlord has that as leverage. Then again, he may or may not want the space vacant... If you've been a great tenant, always paid rent on time, have been easy to communicate with and work with on most issues, then you've got that as leverage too...

When I was negotiating a lease for our 3rd/4th store, I ended the negotiation when - for the third time - the corporate landlord wouldn't actually tell me how much they wanted to charge for rent... they just kept asking me to submit an offer, then responding with "that seems awfully low..." Maybe your landlord is different and will tell you a number to either accept or leave.

-Case

[Adamski]

Andrew,

Without knowing any specifics about your current lease; consider starting this way -

Dear Mr Landlord,

I want to sign a new long term lease. However, as you know, the local economy has been terrible in recent years and I am struggling to make ends meet. I can offer you $XXX per month (current rent minus 20%) for a 20 year lease. Thank you for your positive consideration of my fair offer.

[ldm]

Have there been other long term Tenant's in the mall or nearby that have negotiated a recent lease extension or a new Lessee that you might talk to for some helpful information. You might get a snap shot of local leases being offered and those signed up already from a realtor / broker in your area. Les

[MrMachine]

This you should know. It's not always "take it or leave it".
While the landlord may tell you this, if you have been a reliable tenant who's paid the rent always on time and with minimum problems for the landlord, then you have some power.

No landlord in their right mind wants to risk losing a good tenant.
Even if he says he can fill the space, he really doesn't know if the next tenant will be a reliable source of income.
That's why it is SO important to always pay the rent on time. It pays off somewhat during negotiation time.

[Howard]

You might want to consider hiring a professional. Their are people at some realestate companies that specialize in lease negotiations. Remember the landlord that owns many malls negotiates leases perhaps on a weekly or at least monthly basis, you do it maybe twice in a lifetime. Who do you think is better at this? He looks at it as a business decision, you look at it personally. Pay an expert to do this for you, you will come out ahead.

[James2011]

Originally Posted by Adamski

Andrew,

Without knowing any specifics about your current lease; consider starting this way -

Dear Mr Landlord,

I want to sign a new long term lease. However, as you know, the local economy has been terrible in recent years and I am struggling to make ends meet. I can offer you $XXX per month (current rent minus 20%) for a 20 year lease. Thank you for your positive consideration of my fair offer.

Larry,

After I wrote my articles on this board, I talked with the leasing representative on the phone and asked him about lease renewals, then he asked me how much do I want to get new rent payment, so I answered him 35% off from current lease, then he said "I will report to his boss, but it's maybe unacceptable", so I said, my previous two times rent reduction request had been declined, so I hope this time it can be.., then he asked me to send him 2010 and 2011 P&L statements, so I am in the middle of preparing the documents with my accountant(CPA).

Once P&L completed, I will mail(or e-mail, which is better?) the documents with short letter to request again the lower rent.
In here, which is better? just keep asking 35% off? or 20% off?
or no letter, just P&L doc?
Thanks,

--Andrew

[breeze]

All of the above.

Look for other vacant spaces in the area, then look up the listing online and see what they are asking to get an idea of the market value.

Where you see commercial broker signs in the area, call them and ask what's the going rate per square foot and what you should be paying for your area. Hopefully they will tell you (as the one I called did).

Then you need to consider your location in comparison to the others available. Which is the more "prime" spot? Are you in it now? If so, you can expect to pay more for a prime spot.

Are there other vacancies in the mall you are in? If so, that may give you some leverage. YOU are potentially losing business due to this (lack of traffic in the plaza = less exposure for you). And the LL may not want to have another vacant store front, should you decide to move on.

I would avoid "take it or leave" unless you are in a position to "leave it", from the sounds of things you are not. However, You could say to them: "The current market rate is "X" and I'm paying more than "X". I would like to pay "Y" based on current market conditions and other comparative listings in the area. I feel "Y" would be a fair amount based on those factors. Plus, If you allow me to pay "Y" I'll be able to continue my operations as your tenant, sign on for a longer term than the current lease with a renewal option." Make "Y" a little less than what you're actually willing to pay. This should open the door for negotiations and hopefully you and the LL can meet in the middle at the rate you're willing to pay.

[Howard]

Why should you give them a P&L - do they share their P&L with you? What business is it of theirs? I bet you when MacDonalds or GAP goes to negotiate a lease they don't provide P&L statements.

If you insist on doing this without expert assitance you are making a mistake - don't try to save a few bucks on this. Perhaps you can find an expert that will agree to a percentage of what they save you -- no savings then no cost.

[Adamski]

Originally Posted by andrewmd

...Once P&L completed, I will mail(or e-mail, which is better?) the documents with short letter to request again the lower rent.
In here, which is better? just keep asking 35% off? or 20% off?
or no letter, just P&L doc?

Andrew,

Work with your accountant to write a letter (not an email) that quotes figures in your P&L statements that show how business has declined. Also, restate your original request for 35% off. Why would come back asking for 20% off when you just requested 35% off?