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Getting to 'Yes' When Negotiating a Lease Renewal

Guest post by: Marijo McCarthy

Article Overview: A client called me recently with a dilemma. She has operated a successful retail business in the same location for 16 years. She believes that the location is important for her business and has contributed to her success. However, her new landlord had presented her with a new lease. The lease required annual rent increases - increases which my client knew would immediately hinder the business' financial health, and at a time when she could least afford it. She didn't think her new landlord was open to what she needed to accomplish, so she called me.

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Getting to 'Yes' When Negotiating a Lease Renewal

A client called me recently with a dilemma. She has operated a successful retail business in the same location for 16 years. She believes that the location is important for her business and has contributed to her success.

However, her new landlord had presented her with a new lease. The lease required annual rent increases — increases which my client knew would immediately hinder the business' financial health, and at a time when she could least afford it. She didn't think her new landlord was open to what she needed to accomplish, so she called me.

I asked her what she could tell me about the surrounding tenants, their occupancy plans, their lease renewals and, most importantly, the status of the several other retail tenants in the landlord's small, downtown building.

It turned out that there were several vacancies in her immediate area; that her next door neighbor (also a tenant of her new landlord) was preparing to move to a less expensive part of town; and that the new landlord was proposing an annual rent increase which would bring her above current market rents.

She called it a perfect storm of events. I viewed it as opportunity.

So we developed a plan for approaching the landlord, armed with a fact-based counter-proposal which supported my client's business goals.

First, she outlined her top three goals:

She wanted to renew her lease for three years at the current rent. She wanted to obtain an option to renew for a second three years with minimal increases. She wanted to eliminate the personal guarantee she had provided for 16 years.

Second, we outlined what she needed to support each of those goals:

She needed to scrub her numbers and business plan to determine whether a three year lease was the right choice or whether she should consider offering the landlord a longer term in exchange for rent consideration. She needed to pursue some market research into her geographic location to determine the facts behind recent vacancies, current lease renewal rates, current rate of inflation and five year plans for the downtown business district. She needed to provide business support for the release of her personal guarantee.

Third, we developed a strategy for presenting her counter-proposal to the landlord:

We marked up the draft lease with the major business points. We outlined those same points in a cover memo, providing the facts to support the narrative, for easy review by the landlord. We reviewed her brief history with the new landlord, how their interactions had been conducted, and what method received the most immediate, positive results.

The result? It took two sets of communications back and forth, but my client got most of what she wanted:

She changed her proposal from a three-year to a five-year lease, thereby giving the landlord something of value, and in return received flat rent for the first three years, with modest annual increases in the last two.

She got agreement on the rent for the five-year option.

She got a release from her personal guarantee after the first year of this new lease.

All in all, my client and the landlord were mutually satisfied, a status that will stand both in good stead as the tenant/landlord relationship continues.

Remember, getting to "yes" requires that you do your homework, arm yourself with relevant facts, find out as much as you can about the landlord's situation, and above all, be reasonable.

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Home > Legal > Marijo McCarthy > Getting to Yes When Negotiating a Lease Renewal >
Article Tags: dilemma, financial health, lease renewal, negotiating a lease, new landlord, new lease, successful retail business

About the Author: Marijo McCarthy
RSS for Marijo's articles - Visit Marijo's website

Marijo McCarthy is principal of Widett and McCarthy, a Boston-area law firm that helps small business owners grow their businesses with pragmatic legal advice, mentoring and a solid team of professional advisors.

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Related Forum Posts
The best time to open a new business The best time to open a new business - I agree. It depends on the business. However, in some cases there are ways around that if you allow yourself to open up to possibilities and get creative. For example, my husband and I are in the process of beginning a sport's store. We live in a touristy community with a lot of winter sports. There are summer sports here as well, but the winter appears to be the most lucrative. We planned on things coming together in order to take advantage of the winter sport's season, but our ideal lease space was held up by circumstances beyond our control. We are still not in. Lease space is minimal so we have some decisions to make. We could either delay everything until Fall or get very creative around our marketing for the warmer weather sports and start right away. We chose to open up to the possibility that there must be a way to succeed in the off season. Because we chose to think positively and look for solutions that fit what we want to do, all sorts of ideas started coming to us. We are now positive we have a plan that will succeed. So, the answer really depends on the business and your willingness to open up to new creative ideas around it.
I am looking for a Mentor who is a Successful Restauranteur I am looking for a Mentor who is a Successful Restauranteur - Hi Evans, An idea for a forum that would be niche focused. My goal is wanting to acquire the expertise of running a highly successful restaurant. Like building any great business I think it would be great if there was One Umbrella resource underwhich I could find a highly successful restauranteur who would be willing to be a Mentor for building a successful restaurant business. A lawyer who understands business and specializes in the restaurant industry and more importantly who would not charge by the hour, But instead on as per completion of a contract basis. A competent CPA/CA who specializes in restaurants and who would be able to offer the right advice in maximzing revenues within the confines of legal parameters. A competent commercial real estate agent who specializes in restaurants and who would assist and advise on acquiring the right locations and also assist in negotiating the Term of Offer Clauses in the Lease Agreement. A competent Tax professional who would advise on maximizing revenues within the confines of legal parameters.
Re: The best time to open a new business Re: The best time to open a new business - [quote="Tami Szabo":1209ledj]I agree. It depends on the business. However, in some cases there are ways around that if you allow yourself to open up to possibilities and get creative. For example, my husband and I are in the process of beginning a sport's store. We live in a touristy community with a lot of winter sports. There are summer sports here as well, but the winter appears to be the most lucrative. We planned on things coming together in order to take advantage of the winter sport's season, but our ideal lease space was held up by circumstances beyond our control. We are still not in. Lease space is minimal so we have some decisions to make. We could either delay everything until Fall or get very creative around our marketing for the warmer weather sports and start right away. We chose to open up to the possibility that there must be a way to succeed in the off season. Because we chose to think positively and look for solutions that fit what we want to do, all sorts of ideas started coming to us. We are now positive we have a plan that will succeed. So, the answer really depends on the business and your willingness to open up to new creative ideas around it.[/quote:1209ledj] Hi Tami, I fully agree with your point of view. For instance, when I was doing research on my potential tennis shop idea, the Prince Tennis sales rep I spoke with was telling me how I would need to diversify my product line with more than just "tennis stuff". He suggested that I expand my product offering by also selling other "in-door" sport equipment for things like badminton, squash, volleyball and soccer in order to survive the winter months.


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