Lease Negotiation

[ldm]

If your due diligence revealed that the 35% discount is justified by current leasing rates, and your P&L cannot support your request, then you may be shooting yourself in the foot by providing the P&L.

IMO, a fair market rent for a L-Mat space is usually not first determined by how well the business is doing...you should determine the fair market rent first to see where that takes you, then if you need further consideration to stay in business, you can get the P&L statements involved for further discounts along with the leverage you may have with the LLD based on his wants and needs for this particular spot. I would provide your accountant's statement to the LLD v. giving your whole P&L for interpretation by others. Les

[James2011]

Originally Posted by ldm

If your due diligence revealed that the 35% discount is justified by current leasing rates, and your P&L cannot support your request, then you may be shooting yourself in the foot by providing the P&L.

IMO, a fair market rent for a L-Mat space is usually not first determined by how well the business is doing...you should determine the fair market rent first to see where that takes you, then if you need further consideration to stay in business, you can get the P&L statements involved for further discounts along with the leverage you may have with the LLD based on his wants and needs for this particular spot. I would provide your accountant's statement to the LLD v. giving your whole P&L for interpretation by others. Les

"...your P&L cannot support your request, then you may be shooting yourself in the foot by providing the P&L."

In here, what do you mean by "support"?
For example:
Among the following three cases, which would be acceptable case?

1) If my P&L shows $18,000 loss on 2011, and if new lease is lower 35% from 2011, which is $18,000 lower, then new(future) P&L(2012) turns to be even( no loss, no gain), but actually a little profit because I paid my salary and expenses in P&L considers salary as one of expenses, this would be good?
Or,
2) If my P&L shows $28,000 loss on 2011, and if new lease is lower 35% from 2011, which is $18,000 lower, then new(future) P&L turns to be still loss including my salary, this would be good?
Or,
3) If my P&L shows $8,000 loss on 2011, and if new lease is lower 35% from 2011, which is $18,000 lower, then new(future) P&L turns to be more profit even after paying my salary, this would be good?


Thanks,

[dbrown2508]

Originally Posted by andrewmd

"...your P&L cannot support your request, then you may be shooting yourself in the foot by providing the P&L."

In here, what do you mean by "support"?
For example:
Among the following three cases, which would be acceptable case?

1) If my P&L shows $18,000 loss on 2011, and if new lease is lower 35% from 2011, which is $18,000 lower, then new(future) P&L(2012) turns to be even( no loss, no gain), but actually a little profit because I paid my salary and expenses in P&L considers salary as one of expenses, this would be good?
Or,
2) If my P&L shows $28,000 loss on 2011, and if new lease is lower 35% from 2011, which is $18,000 lower, then new(future) P&L turns to be still loss including my salary, this would be good?
Or,
3) If my P&L shows $8,000 loss on 2011, and if new lease is lower 35% from 2011, which is $18,000 lower, then new(future) P&L turns to be more profit even after paying my salary, this would be good?


Thanks,

This is why providing a P&L isn't recommended. People interpret facts many ways.

I would interpret scenario 3 as supportive. I assume you need to make a profit to be in the business. However, Mr Landlord may say "I don't need to cut my lease payments just to put money in your jeans" and give you no more than $8k.

He may look at scenario #2 as supportive of a $18k cut in rent, and scenario #1 as a warning that you won't be here for long.

To Larry's earlier point, the most information I would give are generalized statements such as "Sales are down by X% versus 2 years ago" or "utility costs are up by y%".

And to echo a few others here, hire a professional. I have a renewal coming up, and have an agreement with a professional to negotiate on my behalf - it will cost me between $1,000 and $2,000, depending on how long it takes him. I'm sure I will get value from his experience well in excess of the money he charges. Plus I don't end up in an adversarial battle with a landlord who I'll need to be with for at least another 12 years.

Doug

[surfflite]

I renegotiated my lease last year. Here is the "bullets" I presented to the property manager, who then met with the property owner.

1) I am the anchor store in the plaza. My business attracts customers that, in turn, use other businesses in plaza.

2) 4 of the 7 spaces in our plaza went vacant in 2011. I pointed out that without a decrease in my lease, I would be the 5th to move out.

3) I shopped around the area and provided about 7-8 other commercial properties for lease that were way less per sq ft than I was paying. I had no intention of packing up and moving as that would be a logistic nightmare, but I threatened to and crossed my fingers.

4) They knew I was struggling as I very rarely was able to pay my rent/CAM on the 1st of the month, usually couldn't afford to pay until between the 15-18th each month.

5) I provided my P&L for YTD showing I was losing money every month.

6) I asked for a 50% reduction. 50% really wasn't enough, 65% would have been optimal, but I figured there was no way I'd get 65% and probably not 50% either.

Result: I received a 32% reduction and they locked in that price for the next 5 years. Prior it was a 2% per year auto increase.

This still isn't enough but it is 32% less and better than nothing.

[ldm]

Originally Posted by andrewmd

"...your P&L cannot support your request, then you may be shooting yourself in the foot by providing the P&L."

In here, what do you mean by "support"?
For example:
Among the following three cases, which would be acceptable case?

1) If my P&L shows $18,000 loss on 2011, and if new lease is lower 35% from 2011, which is $18,000 lower, then new(future) P&L(2012) turns to be even( no loss, no gain), but actually a little profit because I paid my salary and expenses in P&L considers salary as one of expenses, this would be good?
Or,
2) If my P&L shows $28,000 loss on 2011, and if new lease is lower 35% from 2011, which is $18,000 lower, then new(future) P&L turns to be still loss including my salary, this would be good?
Or,
3) If my P&L shows $8,000 loss on 2011, and if new lease is lower 35% from 2011, which is $18,000 lower, then new(future) P&L turns to be more profit even after paying my salary, this would be good?


Thanks,

IMO, With limited knowledge of your overall operation, all of the above scenarios could support a rent reduction as it does not seem your salary is excessive by any means. I would investigate the actual current value of the rental space to see how far that gets you towards your goal, and then work the numbers against what you need to stay in business. If you are not sure your accountant can handle this process with / for you, then please follow the suggestions others have made about contacting a professional for assistance in negotiating a lease reduction. Les

[James2011]

Originally Posted by dbrown2508

This is why providing a P&L isn't recommended. People interpret facts many ways.

I would interpret scenario 3 as supportive. I assume you need to make a profit to be in the business. However, Mr Landlord may say "I don't need to cut my lease payments just to put money in your jeans" and give you no more than $8k.

He may look at scenario #2 as supportive of a $18k cut in rent, and scenario #1 as a warning that you won't be here for long.

To Larry's earlier point, the most information I would give are generalized statements such as "Sales are down by X% versus 2 years ago" or "utility costs are up by y%".

And to echo a few others here, hire a professional. I have a renewal coming up, and have an agreement with a professional to negotiate on my behalf - it will cost me between $1,000 and $2,000, depending on how long it takes him. I'm sure I will get value from his experience well in excess of the money he charges. Plus I don't end up in an adversarial battle with a landlord who I'll need to be with for at least another 12 years.

Doug

Someone told me showing (loss) on P&L statement is not a good idea.
Then, why LL should consider rent reduction if tenant makes profit??

That's why all my example cases has loss.

By the way,
Doug, are you confused #2 and #1, right?
so, scenarios #2 is a warning, right?

Thanks,

[dbrown2508]

You're right. I mixed the 2 up.

To Les' point, I agree. In my opinion any of these say you aren't making enough. Frankly I think most businesses are not making enough.

Now most owner manager businesses I've ever run across that are selling say "the books show a loss, but they don't include X$ that I pull out through ...". I'm an accountant, and I don't believe many of the financial statements of small businesses. I suspect a landlord is as skeptical as me.

You are a cash business. Every single 1 of my customers think I must make a crazy amount of money at my business - they figure its like owning a casino. I honestly dont think your P&L will convince them at all.

[James2011]

Originally Posted by dbrown2508

You're right. I mixed the 2 up.

To Les' point, I agree. In my opinion any of these say you aren't making enough. Frankly I think most businesses are not making enough.

Now most owner manager businesses I've ever run across that are selling say "the books show a loss, but they don't include X$ that I pull out through ...". I'm an accountant, and I don't believe many of the financial statements of small businesses. I suspect a landlord is as skeptical as me.

You are a cash business. Every single 1 of my customers think I must make a crazy amount of money at my business - they figure its like owning a casino. I honestly dont think your P&L will convince them at all.

Doug,
Then, can you tell me what can convice Landload? what can make them believe it? How can I convince them? thanks,

[James2011]

Originally Posted by dbrown2508

You're right. I mixed the 2 up.

To Les' point, I agree. In my opinion any of these say you aren't making enough. Frankly I think most businesses are not making enough.

Now most owner manager businesses I've ever run across that are selling say "the books show a loss, but they don't include X$ that I pull out through ...". I'm an accountant, and I don't believe many of the financial statements of small businesses. I suspect a landlord is as skeptical as me.

You are a cash business. Every single 1 of my customers think I must make a crazy amount of money at my business - they figure its like owning a casino. I honestly dont think your P&L will convince them at all.

Then why LL request to see the P&L?
How can I convince LL?
Thanks,

[ldm]

Andrewmd: Based on my reading of the various posts, and your continured like kind questions, I would strongly recommend you hire a professional to assist you in your efforts to obtain the best rental rate available from your LLD. This recommendation is made with all due respect to you as a fellow business owner with the simple belief that the right professional will net you a better deal than if you go it alone. Les