Getting to "Yes" When Negotiating a Lease Renewal

Author: Marijo McCarthy

Author: Marijo McCarthy

A client called me recently with a dilemma. She has operated a successful retail store in the same location for 16 years. She believes that the location is important for the continued success of her company.

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 the new building owner 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'sgoals. 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 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 look intoher geographic location to determine the facts behind recent vacancies, current lease renewal rates, current rate of inflation and five year plans for the downtowndistrict. She needed to provide facts 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 building owner, 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. The information you obtain here is not, nor is it intended to be, individualadvice from a lawyer.You should consult your own lawyer for individual advice regarding your own situation. Copyright 2009 Widett and McCarthy, P.C. About the Author:

Marijo McCarthy is principal of Widett and McCarthy, P.C., a Boston area law firm that helps Massachusetts small business owners build successful companies, one contract at a time.

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