By Paul Davies, Head of Commercial Property at Harper James (www.harperjames.co.uk), shares some practical tips for those looking to negotiate a lower rent payment.
Whether you are looking to take on a new lease or you are part way through your existing lease, you may need to negotiate different lease terms.
Can you negotiate your commercial lease?
You can negotiate your rent at the Heads of Terms stage before completing a lease, or at each rent-review date (although the lease usually prevents any reduction when it is reviewed). When you complete a lease, you are contractually bound to perform the agreed terms, including payment of the agreed level of rent. If you think your rent is too high or there are other reasons you need to reduce your rent, you could still negotiate a lower rent during the lease term, even on a temporary basis. If your landlord agrees a new rent, there are various ways to document the change such as a side letter or a deed of variation.
You need to be well prepared for discussions, before approaching your landlord or their agent. We have set out some tips for you to consider.
Establish a strong working relationship with the landlord
If you are a new tenant, a landlord is less likely to agree a lower rent when you are first entering into the lease arrangement. You are likely to be in a much better negotiating position when you become an established tenant.
To be in a strong position for negotiations, it is important to:
• Build rapport with the landlord and have mutual trust
• Be reliable and punctual with payments
Research the local rental market
You need to understand the local rental market:
• What are the rental trends and vacancy rates? If demand is low the landlord may have a hard time finding a new tenant
• How much is charged in rent for similar properties in the area?
• Are you aware of any other factors that might influence the rental market eg: escalating interest rates or availability of similar properties?
Steps you should take before you negotiate terms
After you have gathered the above information, you will want to decide the position to put forward to your landlord. You should firstly:
• Set realistic goals and objectives. You may have a specific sum in mind for a new rent but be prepared to compromise. You will want to continue a good working relationship with your landlord after an agreement is reached
• If affordable, tenants should seek the advice of a valuation surveyor who will know the market rates and other terms which might make a lower rent more acceptable
• Have a backup plan. If you’re unable to negotiate a lower rent, you should have a backup plan in place. This could include finding a new location or subletting your current space (if your agreement allows it). You may be able to exercise a break clause if there is one in the lease
• Seek legal advice from a commercial property solicitor and the advice of other professionals, especially if you do not have experience negotiating rent payments
Negotiating rent payment
You are then ready to negotiate. Here are some useful points to note and tips for this stage:
• Process – How you start the conversation will depend on your relationship with the landlord. If you have a direct relationship, you may have better luck by approaching them direct for a discussion. You may need to negotiate through their agent or engage your solicitor to negotiate on your behalf. For efficiency and to secure the best terms, it is advisable to engage professionals early in the process
• Timing – For an existing lease, the process could take weeks by the time any agreement amendment is documented but may drag on for months depending on factors such as the reasonableness of the parties or the changes to terms agreed. For a new lease negotiated by solicitors, typically, a smaller straight forward lease negotiation would take 6 to 8 weeks. A very complex arrangement may take many months
• Compromise – If you are not able to secure a lower rent, you may be able to negotiate other terms of the lease, such as the frequency of payments or for some rent to be deferred to a later date. You might be able to fund monthly payments but would struggle to find three months’ rent in advance. It may be in the landlord’s best interest to accept rent monthly, rather than effectively forcing a tenant into insolvency, leaving the landlord with no rent and possibly a liability to pay rates on an empty property. You might instead ask for a rent-free period, allowing you some time to fit out the premises and start building income
• Offer other terms – If lower rent is a top priority, then you may be able to negotiate this by offering other less favourable terms, such as quarterly rent payments or signing up to a longer lease term
Summary
The extent of your negotiating power will largely depend on market conditions. You may not manage to negotiate the figure you have in mind, but you may still achieve a lower rent or some other concession which allows you to successfully continue your business from the premises.
