21 Jul Lease Negotiations – Some Hints
I attended a seminar held by the Franchise Council yesterday. The speakers were Ralph Edwards and Phillip Chapman of Lease 1. A link to their website is http://www.lease1.com.au/contact.html
There were a number of good points made which have caused me to consider the process of negotiating a lease. We suggest that you always obtain legal advice before proceeding to any negotiation. Here are some suggestions:
1. Pressure on a tenant builds as the date for renewal approaches. Tenants are well advised to
begin negotiations relating to obtaining new lease at least 12 months before the current lease expires. Institutional landlords are very organized and actively plan how they can get the best deal for their shareholders. Landlords know that without the lease there is no business. As the end date approaches, pressure mounts on the tenant, so that the business is not lost. The tenant has more options while a significant part of the lease term remains and so this is the best time for a tenant to negotiate.
2. It is very difficult to sell a business that has a lease term of less than 3 years. Some tenants may want to secure a longer terms so that the value in the business is preserved.
3. A good relationship with the landlord is essential and should be preserved. There is more than one way to skin a cat. Picking arguments with landlords and centre managers does have a negative impact on the tenant and can damage the chance of successful negotiations.
4. Better that shop fitters are not also the designers of the shop fit. It is important that you own the shop fit design so that you can effectively obtain quotes. This separation also ensures that there is no conflict of interest between the designer who should prepare the most cost effective solution and the shop fitter who will profit from a more difficult design.
5. When negotiating for a new rental make sure that previous rental reviews are checked for accuracy. If previous reviews were incorrectly undertaken (in favour of the landlord) then this inaccuracy can be used as a tactic in negotiations.
6. Consider if there are alternatives to bank guarantees and personal guarantees. It may in some circumstances be better to provide a larger bank guarantee and offer no personal guarantee. This strategy may be used to limit the extent of any risk under the lease.
7. Make sure that you have undertaken appropriate research before you attend any negotiations. The landlord will put a positive spin on the environment. Are you able to challenge this. You should know when other leases within the centre expire. You should know which tenants are having difficulties. The wider economic of situation is also relevant.
8. Know what your rental should be as a percentage of your turnover. Every industry is different. The landlord will have this information however it may not be presented correctly. Consider if GST is included or excluded from the figures consistently and what difference this may make.
9. Understand what positive qualities your business brings to the centre. There may be some value to the landlord in having your business in the centre. Could this be a negotiating tool.
We are happy to help you with negotiations or refer you to a consultant.