Offering a lower rent

[BayView]

Most of you know I own a tyre and mechanical business.

Next Aug our first 5 year term of lease ends, and we can option for another 5 years (it's a 5x5x5).

The rent is one of the major fixed costs - and I would like to decrease it.

Has anyone had any experience with offering less rent (as a tenant) or receiving a request (as a Land lord) for reduced rent?

There is another premises quite close to where we operate, which is substantially bigger and has been vacant for about a year that I know of.

They are asking a bit more rent than we currently pay - they want $5500 pcm, we currently pay $4000.

I was thinking of waiting until the end of Jan and offer them half the rent, with 6 months free rent at the start, 5x5x5 lease... covers my existing lease until they find someone else, or the renewal in Aug.

Half of something is better than nothing is the mentality, and I suspect they will laugh in my face, but you never know...looong vacancy.

Has anyone been a Landlord and had to suffer a long vacancy and had to cop a sizeable rent reduction to get a tenant?

 

[moyjos]

Not quite as dramatic as half rent, but I successfully negotiated no rent rise for my current 2 year option (just signed beginning of November) Current market rents are slightly lower than what we are currently paying so I argued that a (proposed 5% ) rise would make it a viable option to move. LL agreed and we have a fixed rent in place for another 2 years. Will see what happens then

Our LL is a good bloke and even he admitted that he felt the raise was not warranted. He is happy, we are happy all good.


In one of my photoshops, the shopping centre was dying big time. (manager was an idiot..whole other story). I negotiated a rent of outgoings only (not fair to not pay the cleaners etc) plus 8%of my turnover I was more than happy to show the LL the figures as it showed him the pathetic-ness (sure that is not a word ) of the centre. Helped greatly by the fact that I had the Kodak name over the door and great benchmark figures of what rent Kodak labs paid.

Long story short- manager got sacked, new manager, lively centre, rent back to market

 

[geoffw]

Try to find as much as you can about the market rents in the area. It doesn't have to be a comparable business, just a comparable zoning. If the market is lower then you have a bargaining chip- if higher just be quiet.

My franchiser negotiated a lease turnover renewal a short while before I finished. There was a rise above CPI because there was an increasing demand in the immediate area.

You might also wish to look at alternate premises- I imagine the cost of moving would not be as high as it was for my business.

So I guess it's the sort of tactics you might use as a potential landlord. Go to various commercial agents posing as a tenant. Comb the ads. Due diligence time.

 

[Macca]

Everything is negotiable

I would certainly be asking around and see if you can either find alternate premises at a lesser price but still in an acceptable location. May be worth thinking about where would you pick if you could be anywhere.

From a business perspective would it be better to pay a lot more rent for a smaller premises but on a main road ? Is there a thriving shopping centre in a back street that you could move next to ? Should you move to a different suburb ? Should you move across the road from your opposition ?

Why not start with an empty slate and look around your area and pick the absolute best spot for your business to be, then check rentals in that area. If you decide to move or stay make sure everything is in writing and do all negotiations early enough to have time to move if necessary.

 

[wylie]

I wonder if you could ask for a reduction in your current premises?

Do you really need the larger premises, which comes with having to increase sales and/or turnover to cover the higher rent, and whatever you have to spend to get it ready for your business to operate from it?

You've said several times that your type of business in general is slower with people stretching out the time between services, but to take on a larger premises at higher rent means you have to reverse that trend.

Your current landlord might consider lowering the rent to keep you there.

 

[Tonibell]

Lease renewal is always the time for locking in your (5 year) business plan.

Once you know what you need from your location and facilities you can compare your current site to other available locations.

If there are other comparable vacant sites locally it should put you in a good negotiating position. We always get in a professional negotiator for any lease and the landlord always has to provide incentive funds (either fitout or rent free) on both new and renewal leases.

The key is to know what is of most benefit to you and genuinely be prepared to relocate.

The only time you just renew is when, after having done all your homework, you know you are a deal you cannot get anywhere else.

 

[westminster]

Are you thinking reduced rent where you are or the other location.
I doubt anyone would take 50% reduction if I do the sums on the other location..... 50% reduction over 5 years is the same as it being vacant for 2.5yrs and finding a tenant at full price for 2.5yrs.

HOWEVER

Most commercial leases (that I'm aware of) usually have the rent set at market rate and an impartial valuer comes in and states how much the rent should be at renewal time and that may be higher or lower for your current premises and then you start negotiating.

Case in point - CIP tenant was offered reduced rate for first 12mths to get tenant into brand new building. He knew it was reduced and agreed after 12mths to a valuer coming in (at owners expense) to revalue. Valuer said current market rent is 30% more than current reduced rent - which was about right. CIP tenant was worse than RIP tenant 'oh but we spent all this money on fitout, air con blah blah blah' and so the negotiations began. Agreement ended up being moving up to the 30% over 2yrs in increments.

So I would see if you can get lower rent where you are and/or lower rent at the other place so that it is equal to what you are paying now and work out how the extra space can make you more money.

 

[Peterw]

You must read and understand your lease. I have seen some, where it actually states that the new rent will be no less than the old rent. Will you be negotiating directly or through the owners agent? As others have said, get to know what out there. You will need more than the knowledge of one property. If you are negotiating directly with the owner, tread carefully. You don't want to **** them off. The last thing you want is for them to get emotional over it. We have one person, with a property now vacant for 5 years, and still sticking to their guns, will not sell for a cent less than ... when informed about their opportunity cost lost, they turn there noses up.

 

[pieman]

My old man owns a shop in a ripping street in st Kilda with a coffee shop in it. The bloke comes to him and says "I'm rooted, I can't afford your 52k pa anymore, business is farked"
Old man caves in given the ugly scenario of trying to find another tenant as 9 months vacant can sure hurt your retirement income.

Worth asking

 

[BayView]

My old man owns a shop in a ripping street in st Kilda with a coffee shop in it. The bloke comes to him and says "I'm rooted, I can't afford your 52k pa anymore, business is farked"
Old man caves in given the ugly scenario of trying to find another tenant as 9 months vacant can sure hurt your retirement income.

Worth asking

at what stage of the tenant's lease did he announce this?

 

[pieman]

I think that guy was 4 yrs in, but certainly not near the end of lease or anything

 

[BayView]

I wonder if you could ask for a reduction in your current premises?

I would do that if it turned out that I could get the rent down on the other larger place. It is probably easier to negotiate a rent decrease if the property is vacant for a long time, than if you are already the current tenant? The larger place would suit us really well, and we could stay at the same turnover or even drop a bit and still be ahead.

Do you really need the larger premises,

Not really, but it has unlimited parking, and the possibility of a dramatically reduced rent below what we already pay.

which comes with having to increase sales and/or turnover to cover the higher rent

It won't be a higher rent than I currently pay if I can neg it down, so need to increase sales - although I'd like to do that too!

You've said several times that your type of business in general is slower with people stretching out the time between services, but to take on a larger premises at higher rent means you have to reverse that trend.

the extra space won't matter if I can get the rent down - I only want it if the rent can be negotiated down below what I already pay. If the economy and the vehicle industry improves, folks may start to get their cars maintained correctly, but I doubt it. I have to be proactive and keep reminding them their services are due, and hope they follow it up and book in.

Your current landlord might consider lowering the rent to keep you there.

that would be a terrific result for me.

I am already considering telling her that we will not be renewing the rent on the vacant block we use as a car park for our customers' cars. The hope is that if she realises she will lose 1/3 of the rent, she might become very motivated to drop the price.

We can function without it - there is plenty of parking on the street, and across the road from us is a largish car park used for various shops.

The only attraction of the vacant block is that it is attached to our workshop property, so it is very convenient.

 

[BayView]

I would certainly be asking around and see if you can either find alternate premises at a lesser price but still in an acceptable location. May be worth thinking about where would you pick if you could be anywhere.

I have found another suitable premises about a block away, which is bigger (not a reason for the change) but it has been vacant for ages now, so I thought I could try a very low rent offer which would alleviate some rent cost for me from my current premises

From a business perspective would it be better to pay a lot more rent for a smaller premises but on a main road ? Is there a thriving shopping centre in a back street that you could move next to ? Should you move to a different suburb ? Should you move across the road from your opposition ?

Our current premises is very close to the main street and shopping centre (not visible from the main road though), and so is the other building.

Paying a lot more rent than we do, without the proven sales to support it would be very, very risky at the moment - moving costs etc, plus a possible drop in turnover, with added rent would be close the doors time.

This is all about reducing the rent.

Why not start with an empty slate and look around your area and pick the absolute best spot for your business to be, then check rentals in that area. If you decide to move or stay make sure everything is in writing and do all negotiations early enough to have time to move if necessary.

Have been doing that for quite a while; suitable properties for our type of business and similar location are non-existent really...until this current vacant opportunity.

 

[BayView]

Are you thinking reduced rent where you are or the other location.

At the other location - it has been vacant for about a year now. Possibility for a reduced rent offer. They are getting zero income right now.

I doubt anyone would take 50% reduction if I do the sums on the other location..... 50% reduction over 5 years is the same as it being vacant for 2.5yrs and finding a tenant at full price for 2.5yrs.

Probably right, but we don't know how desperate they are. There are 3 other little shops in the same complex vacant as well. If they are all the same LL All under one roof line - like a mini-mall), then he/she may be feeling the pinch by now. The place I am looking at is by far the biggest one vacant.

So I would see if you can get lower rent where you are and/or lower rent at the other place so that it is equal to what you are paying now and work out how the extra space can make you more money.

Lowering the rent to what I pay now, and then try to increase income for the bigger space some other way won't fly initially, and I would be bankrupt before the fruits were realised - if they were realised.

Unless I could negotiate an extremely favorable rent in the vacant place, I won't bother.

My other strategy is to tell our current LL we no longer need the vacant block for parking - a drop of 1/3 her rent overnight.

I won't budge on that, and the hope is she will simply give us the land free to use. No skin off my nose if she doesn't.

She can't simply sell it to anyone else but us as well - a clause in the contract for first right of refusal. Or; she may develop it herself into small shops and residence.

But, even if we don't buy it and someone else does, we will still have the reduced rent and not need the space.

 

[BayView]

We always get in a professional negotiator for any lease and the landlord always has to provide incentive funds (either fitout or rent free) on both new and renewal leases.

Thanks for that Tonibell.

Where do you source a professional negotiator for a lease?

I used a lawyer for the original purchase and lease transaction. He was really good.

Would he be the type of person to use?

 

[moyjos]

I know you don't have a lot of ready cash, but you may have equity in PPPR. Is there any possibility if offering to buy the vacant premises?

 

[BayView]

I know you don't have a lot of ready cash, but you may have equity in PPPR. Is there any possibility if offering to buy the vacant premises?

There may not be much left useable equity due to loan on business, credit card, overdraft, loan on IP, investment loan, top-up loan on PPoR build (cost $90k more than we had cash available to build), personal LOC.

Our LOC and business CC, and O/Draft are always operating at about 90% drawn these days , and not much hope of relief anytime soon. Just hangin' on and trying to pay bills each month - have cut my wage in half from the business just to keep funds available to pay suppliers etc.

On top of that; there is serviceability on existing loans, and the vacant land will have no income from it on it's own to support new debt..

I would seriously doubt getting any loan from any bank.

 

[Ideo]

We are in the process of re-negotiating a lease. I'll drop you a PM.

 

[westminster]

I think getting rid of the vacant block rent would be an instant win if as you say there is plenty of alternative parking.
A 1/3 drop in rent would give you some good relief.

 

[Tonibell]

Thanks for that Tonibell.

Where do you source a professional negotiator for a lease?

I used a lawyer for the original purchase and lease transaction. He was really good.

Would he be the type of person to use?

We use a one-man show, Independent Industrial Property Services which is Sydney based.

The services (and skills) are completely different from a lawyer - I guess it would equate best to a buyers agent, but for commercial leases.

I'm not sure how you source them - we came across Mark when he came to a property we were leaving with a different client. However, he has saved us a lot and I think it is money well spent.