W H I T E PA P E R
Four Strategies to
Negotiating a Rent
Reduction
By Emily Wheeler
Contributing editor,
FastCasual.com
Sponsored by:
Preparation, facts and a good attitude can go a
long way to trimming a restaurant’s lease.
I
t seems so simple — once a lease has
been signed, the rent payments are determined. Even when times are tough,
business owners may think their rent payment is set in stone.
According to the “U.S. Business Trends
Report 2011” by Short Hills, N.J.-based
research firm Dun & Bradstreet, however,
more than 80,000 businesses failed in 2010.
When a business fails, it impacts more
than the owner; it also has a ripple effect
on distributors, vendors and, of course,
landlords. Landlords, then, can be negotiated with to reduce the rent on a business,
because it is cheaper for them to keep an
existing tenant, even at a reduced rate,
than it is to try to find a new tenant.
This white paper, sponsored by Huntington Beach, Calif.-based Lease Resolutions,
a provider of professional lease negotiation
services, will discuss four strategies to negotiating a rent reduction: being prepared,
providing evidence, being proactive and
having a good attitude.
Be prepared
Treat a rent negotiation as any other kind
of business transaction. Landlords don’t
give rent reductions out of the goodness of
their hearts — they do so because it makes
financial sense for them. But it is up to the
business owner to prove why that decision
is a good one.
Rents can be reduced, but to convince the landlord, a tenant must be prepared
with all the facts and figures.
© 2012 Networld Media Group | Sponsored by Lease Resolutions
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Four Strategies to Negotiating a Rent Reduction
Before requesting a rent reduction, know
the current fair market value of the leased
premises. Do research on the asking prices
on comparable available space, rents paid
and improvement allowances given for
recently leased space, tenant turnover and
vacancies in the area, competitor sales
trends and any new properties that may be
coming online. It is possible, for example,
that comparatively, the rent paid is already
below market value. If that’s the case, asking for a lower monetary value may not be
a good option, but offering a trade (such as
allowing the landlord to rent out a banquet room within the space) might work.
If, however, there are a large number of
vacancies in the neighborhood, the landlord may have a more difficult time finding
a new tenant, and may be more willing to
work with the business owner to determine
a lower rent.
Also important is who the landlord is. An
individual owner may have more flexibility than a large corporation. Try to
understand the landlord’s needs, such as if
he needs a continuation of cash flow or if
it more important to maintain the building as a long-term asset. Knowing what is
important to the landlord can help create a
more compelling proposal.
Finally, check to see if there is a personal
guarantee on the lease. If John Smith, for
example, has personally guaranteed the
lease on a restaurant, he is responsible
for payment. In the event that a tenant
defaults, a personal guarantee gives the
landlord extra security and more leverage
in the negotiation.
Provide evidence
But simply going to the landlord and saying “Hey, I think my rent is too high,” is not
enough. When crafting a rent reduction
proposal, be prepared to show:
•Tax returns. This helps the landlord know exactly how much money the business has generated, and thus, how much it is reasonable to pay in rent.
•Financial statements. Not only does this demonstrate how much money the business has generated, but what expenses are, as well.
•Monthly sales history. If sales started strong but have recently dipped, it may convince a landlord that the rent reduction should be temporary, and when sales pick up, the rent can be raised again.
When providing documentation, go back at
least two or three years.
The more history can be
shown, the clearer the
picture can be painted
for why a rent reduction
is necessary.
What to know
when negotiating
Before negotiating, know:
 Current fair market value of the premises
 Tenant turnover and vacancies in the area
“All of the information
 Competitor sales trends
should be presented in
clear, concise way,” said
 New properties that
are becoming available
Lou Boemia, vice president for restaurants and
retail, Lease Resolutions.
“Have balance sheets and graphs showing
trends and projections. Present what measures you have taken already to increase
sales and tighten the budget.”
© 2012 Networld Media Group | Sponsored by Lease Resolutions
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Four Strategies to Negotiating a Rent Reduction
iStock.com/studiocasper
Include all other related costs targeted
for reductions. It may be possible to trade
lower rates now for a longer lease term
with some other favorable conditions, or
have the landlord make capital improvements to the facility.
A good proposal needs proof that it makes sound
business sense to offer the rent reduction.
Be proactive
Information alone isn’t enough. It is up to
the business owner to prove to the landlord that a rent reduction makes sense.
When asking for a rent reduction, be
specific. Come prepared with the exact
amount of rent that will be paid, and for
how long. Will the rent reduction only be
needed for six months? Can more money
be paid at the end of the lease to off-set the
reduction now?
The presentation should have a clear,
written business case with authoritative
documentation in support of the request.
Provide the landlord with an empirical
financial analysis illustrating the costs
associated with vacancy. The revenue
model should chart out accurate figures
representing a reasonable time period of
rent loss until collection of rental income
is resumed from a proposed replacement
tenant and project a realistic rental amount
that a replacement tenant would pay, as
well as the cost of taxes, maintenance and
insurance, brokerage commissions, improvement allowance, legal fees and more.
Expect the landlord to ask for something in
return that benefits the property and/or the
landlord. It may be possible to offer a higher
percentage of gross sales or a lower breakpoint, so the landlord benefits from future
sales increases. Perhaps the rent can be
raised at the end of the lease, or extra space
can be given back. Work with the landlord
to create a mutually beneficial situation.
Have a good attitude
Approaching a lease negotiation from
an adversarial standpoint is the quickest
way to get a negative response. Remember, both parties have a vested interest in
coming to an agreement, so approach the
situation as a team.
“The most effective approach is you and your
landlord working together for the benefit of
your business and the enhancement of the
landlord’s property value in the long term.”
— Lou Boemia, vice president for restaurants and retail, Lease Resolutions
“You want to be part of the solution, not
the problem,” said Boemia. “The most effective approach is you and your landlord
working together for the benefit of your
business and the enhancement of the landlord’s property value in the long term.”
© 2012 Networld Media Group | Sponsored by Lease Resolutions
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Four Strategies to Negotiating a Rent Reduction
Lease negotiating may seem like a complicated process, but, when done correctly,
can result in significant savings for a business owner. Being prepared and proactive,
having a plan and approaching the landlord as a colleague rather than an adversary
all can help make the negotiations go more
smoothly. In addition, professional lease
negotiating services exist that can handle
much of the paperwork, provide expertise
and save time.
About the sponsor: Since 1995, Huntington
Beach, Calif.-based Lease Resolutions has built its
reputation delivering innovative, value producing
real estate solutions and providing expert lease
consulting services for clients in both the retail
and restaurant industries. The company’s team of
senior professionals has decades of experience in
negotiating the acquisition of profitable locations for successful businesses nationwide. Lease
Resolutions professionally represents its clients’
interests in confidential lease and purchase transactions, saving substantial capital expenditures
and greatly reducing risk exposure.
© 2012 Networld Media Group | Sponsored by Lease Resolutions
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