Asking to Renegotiate Lease
Q: My business has been experiencing what I anticipate will be a temporary financial setback. I’m considering approaching the owner of the space I lease to ask for a renegotiation that would put things back on track. What are some possible ramifications and how can I avoid or minimize them?
A: Lease renegotiation can be a good solution for struggling tenants, especially compared to entering bankruptcy. However, its short- and long-term ramifications can be damaging both financially and professionally. Be aware of your reputation, which could be at stake.
One short- and long-term ramification of a lease renegotiation is that once you go to the owner and start the renegotiation process, you put the owner on notice that when things get bad, you’re the type of tenant that asks for help. And it puts your owner on notice that your business may not survive. You must take into account the fact that you can ask your owner for help only so many times, before you’re seen as a perpetual problem tenant and a risk.
In some cases, owners trade information, so a lease renegotiation at one property may make it difficult for you to do something at a separate property.
Consider privacy issues, too. You’ll also lose privacy if you ask the owner for a lease renegotiation. An owner doesn’t help a tenant financially out of kindness. Every dollar that it gives up is essentially a dollar that it’s investing in the tenant’s business, in the hope that the business will become profitable again. When a lease is renegotiated, the owner becomes the tenant’s de facto business partner. Because of this, the owner will want to see what you’re doing with the savings from the renegotiation. For example, are you using the money to bring in an outside business consultant, or are you increasing your own and your employees’ salaries?
The way you spend on costs, salaries, and marketing helps the owner understand where your business is today, and where you’re trying to take it. Owners want the rent savings from renegotiated leases to go back into the business so that they can recoup the money they have lost.
For additional critical items to take into account, and how you can make your renegotiation less risky, see “Avoiding Pitfalls of Lease Renegotiation,” available here.