Time to Renegotiate?

By PlanetLaundry staff | Jul 20, 2011

Are you looking for ways to cut costs at your self-service laundry? Perhaps it’s your lease that’s weighing you down. Although you can’t just pick up your business and leave, maybe now is the time to renegotiate that lease.

Here are some guidelines to help you determine when the time is just right to give your landlord a call:

1. When vacancy rates go up.

Commercial property owners need to make rent concessions when vacancy rates are higher (because there are fewer businesses to fill their spaces). Find out the vacancy rate in your building, on your block, in your ZIP code and on your landlords’ other properties compared to previous quarters. The higher the vacancy the rate, the better chance you’ll have at renegotiating your lease.

2. When your rent-to-sales ratio is off target.

Most industries, geographic regions and local economies have typical rent-to-sales ratios, or the percentage of sales that you should be allocating toward building expenses. (The average personal ratio for housing expenses to income, for example, is 30 percent.) Check with your local economic development agency and ask neighboring businesses for standards. If your ratio is off target, it’s time to renegotiate your lease.

3. When other tenants’ leases are up for renewal.

If a landlord is risking several vacancies at the same time, he or she may get too nervous to let you go. Try negotiating when your fellow tenants are negotiating. Don’t know when their leases are up or when they plan to approach the landlord? Just ask. You’ll have strength in numbers.

4. Think six months to two years ahead.

It’s standard to start renegotiating a commercial lease six months to a year ahead of expiration, but for longer leases even two years ahead is acceptable. The closer to the end of the lease, the more leverage you have – but give yourself enough time to find a new place if the negotiation doesn’t yield enough savings for your business.

5. When your landlord’s mortgage is set to expire.

Landlords want to show a high occupancy rate when they’re seeking new financing. Regardless of how far along you are in your lease, you’re likely to have negotiating power if you know when your landlord’s mortgage is up for renewal.

6. When you have more to gain than lose.

Before you think about renegotiating your lease, make sure you know what you’re giving up. Is your laundry in a prime foot-traffic area? (You might lose sales if you move.) Is your store close to where most of your attendants live?  (You might lose employee satisfaction if you move.) Make sure any margins you gain won’t be offset by any potential losses.

Source: National Federation of Independent Business