Did you know that you should be reviewing the market rent and negotiating your rent before you renew it? Are you aware of all the other areas that you can negotiate to improve your position on your property lease? If this has raised your interest, please read on…
Peter* has been leasing his dental practice in a popular regional shopping centre in NSW that is owned by a large corporate shopping centre owner for eight years. Peter was apprehensive about signing a new Lease, as he wasn’t sure he could afford the new rent being asked by the Landlord. He wanted to stay in the current location, as his business was established, but was scared of the higher annual rent.
Peter received an offer from the Landlord’s leasing executive, which included another rental increase of 5%. The leasing executive had also visited his practice and encouraged him to sign the offer, since the increase was minimal and it has been increasing by 5% annually already anyway, so it shouldn’t be a big deal. Sound familiar?… Maybe you’ve experienced this yourself?…
A LUCKY BREAK FOR PETER
By luck, Peter came across a Tenant Representative. These professional service advisers specialise in all things to do with commercial lease negotiations. They conduct these negotiations on a daily basis and play the same game as the Landlord, removing the anxiety around what the rent actually should be. They step into the Tenants shoes, removing any risk of Peter being pressured or coerced into something which wasn’t fair.
The Tenant Representative has access to the same market data as the Landlord, allowing them to negotiate with the Landlord as an even player at the table, removing any power imbalance the Landlord had over the Tenant. In this case, Peter happened to come across Your Leasing Co at just the right time.
After a phone call with Peter, Your Leasing Co had a detailed understanding of the situation and Peter’s objectives for his new lease.
Your Leasing Co stepped in to act on behalf of Peter and after an initial conversation with the Landlord’s leasing executive, it was clear that the Landlord highly valued Peter’s dental practice and the service that Peter’s business bought to the customers of the shopping centre. Once challenged by Your Leasing Co, the Landlord was actually open to a discussion about the terms and the negotiation commenced.
Peter was relieved that he now had an experienced leasing expert on his team, who he could rely on to act in his best interests and negotiate on his behalf, to reach an agreement which was affordable and aligned with what was happening in the market, rather than simply agreeing to ANOTHER 5% annual increase. He could go back to focussing on his business and not be worried about the lease expiry coming up.
Your Leasing Co were successful in negotiating a very favourable commercial outcome for Peter.
PETER’S STARTING POSITION
Peter’s starting position was a very straight forward renewal deal, in the favour of the Landlord! The rent was going to “just” increase by the “standard” 5%, so it should be finalised quickly. As a side note… a 5% annual increase equates to just under a 30% compounded increase by the end of a 5 year lease.
PETER’S FINAL POSITION
Your Leasing Co were able to negotiate the following deal …
- A rent saving of $135,265 over the 5 year term of the lease, a 22% reduction from the current rent, compared to a 5% increase in rent that the Landlord was asking
- A resultant saving of $6,330 in the promotions levy
- Total savings and value of $141,595 over the term of the lease
ADDITIONAL BENEFITS AND VALUE NEGOTIATED
Other elements of the leasing process that were successfully negotiated are…
- Additional Option Terms. Securing further tenure through the use of options. This is a great way to ensure control of the space without the extended commitment. Following the initial five year term, Your Leasing Co secured two further terms of three years, securing the premises for a total of 11 years if desired.
- Extension to Usage Clause. Extending the proposed usage clause to include other associated services is a great way to allow for growth and other revenue streams through the practice. Your Leasing Co negotiated this, as well as negotiating that if there was a sublease of some of the space within the premises, the Tenant was not required to gain Landlord consent for such a sublease, enabling the process to be very simple and free of red tape.
- Fixed Rent Reviews. Securing a fixed percentage for the annual reviews provides certainty for your cashflow management. The Landlord had proposed 3% or CPI, whichever is greater. Up until recently, this would result in a cap of 3%, however, the CPI rate is currently around 6% and is very fluid, proving to be very unpredictable for those who are using this as their method of review. Your Leasing Co negotiated a fixed 3% increase annually.
- No Personal Guarantees. Personal Guarantees are normally a pre-requisite for most commercial leases. Negotiating the removal of the existing personal guarantees that had been in place for eight years, means that the security over the premises is limited to the three month Bank Guarantee only and the directors of the company did not have any personal exposure to risk over this premises.
- Signage. Signage opportunities on the building are important and are often only provided to Tenants for an additional signage rental. In this case, signage opportunities were negotiated with no additional fees payable.
Peter was thrilled with the savings and additional benefits that were negotiated. He was also relieved to be able to hand over the stress of negotiating to a professional who knows the market, is able to unemotionally and commercially assess the deal and match the Landlords leasing executive in experience and knowledge, providing him with confidence and an outcome that he couldn’t have achieved on his own.
Your Leasing Co. specialises in representing Tenants and negotiating lease terms for Tenants. If you have any questions about negotiating the best outcome for your renewal, you can call Kelly Cunningham for a free, no obligation conversation and a free lease review on 0419 001 093.
*Our clients name has been changed to protect privacy.