When The Lease Coach speaks at the Nightclub & Bar Convention and Trade Show in Las Vegas in March, Dale Willerton will discuss many topics, including mid-term rent reductions.
If you were approaching the end of your lease term there would be hope for a rent reduction on the lease renewal. Unfortunately, many bar tenants find themselves in trouble somewhere mid-term into a five- or 10-year lease agreement. If so, a commercial landlord may agree to a mid-term rent reduction for several reasons.
To Avoid Taking the Space Back
Replacing a tenant can be very time consuming and expensive for a landlord. There are real estate commissions to pay, demolition of the existing premises to occur, months of lost revenue while the space sits vacant, and so on. In addition, a new tenant moving into the space would probably also get a tenant allowance and free rent. It could be quite a few financial steps backwards for a landlord to replace your business tenancy, if he or she can at all.
Other Existing or Pending Vacancies
If the landlord already has other vacant units within the same property, odds are greater they won’t want another vacancy. Even if the building appears to be fully occupied by other tenants, many of your neighbors may be behind in their rent or planning to close out entirely sooner than you might think. Several existing tenants may not be planning to renew their leases, so the landlord knows that more space will become available in that property soon. These make for even better reasons for your landlord to keep your tenancy, even at a lower rental rate.
A Downward Shift in Market Rents
If market rents have reduced and the landlord is leasing space to new tenants at a lower rental rate than you are currently paying, then replacing you with another tenant is less desirable. Not only have you proven yourself as a more established tenant, the new tenant would be paying the lower (new market) rental rate, meaning the landlord will ultimately be no better off.
If other bars are closing out in your area, the landlord will be more motivated to keep you open, even at a lower rental rate. When any tenant closes out, the landlord (or the landlord’s agent) tends to look for a similar use replacement tenant (e.g., another bar owner). If no other same-use tenants want to take over your location the landlord is better off keeping you open.
Remember that landlords don’t lower rents for the sake of the tenant. Landlords lower rents to help themselves retain a rent-paying tenant—receiving a reduced percentage of the rent is better than receiving nothing at all, particularly if there are vacant units in the property.
How much of a mid-term rent reduction is possible? All tenants and their situations differ and results will vary. However, The Lease Coach recently successfully negotiated a reduction of roughly 18% of one tenant’s rent, equating to a $2,100/month rent reduction. The tenant’s total savings were close to $140,000 over the balance of the lease term. Obviously, this tenant was absolutely delighted and told us about other tenants in the same franchise system who also needed leasing help.
At the end of the day, if a landlord must choose between seeing your bar close down or giving you a rent break, it might actually be easier, cheaper and more realistic for her or him to reduce your rent, right now, mid-term.
For a copy of our free CD, Leasing Do’s & Don’ts for Commercial Tenants, please e-mail your request to [email protected], and be sure to register for the 2018 Nightclub & Bar Show so you can catch our presentation, “Negotiating Commercial Leases & Renewals FOR DUMMIES.”
Dale Willerton and Jeff Grandfield—The Lease Coach are commercial lease consultants who work exclusively for tenants. Dale and Jeff are professional speakers and co-authors of Negotiating Commercial Leases & Renewals FOR DUMMIES (Wiley, 2013). Got a leasing question? Need help with your new lease or renewal? Call 1-800-738-9202, e-mail [email protected] / [email protected] or visit www.TheLeaseCoach.com.