I have recently negotiated a lease extension with the landlord for a high street retail business I own and share the story here.
I nominated that I wanted to take up the extension permitted in the current lease. This triggered a market review opportunity for them which they embraced. The landlord engaged a single local real estate agent who came back arguing for a 10% increase with little hard evidence. The double-digit rental increase was put to us by the solicitor for the landlord.
With the solicitor being difficult to deal with, I went back to the landlord explaining that I felt a fairer increase would be 5%. I explained that I had the option to reject their proposed increase through a more formal channel but would prefer to negotiate a middle-ground solution both parties could live with. I refused their argument of evidence form one real estate agent as being sufficient and reinforced that we had always paid on time and have been good tenants.
I was certain that QCAT would reject the landlord’s use of a single real estate agent and that the letter from the real estate agent did not, of itself, represent a fair market review.
After a couple of weeks consideration of my middle-ground proposal and several emails from me restating my case, the landlord agreed to the proposal of a 5% increase. While no increase can be considered to be good, it works in this situation. The business is tracking well and can digest the increase with much of what we sell not being fixed-price. Our approach is to chase more traffic, get existing traffic buying more and increasing our margin on all items through small steps on price.
I wanted to write about this today to encourage newsagents facing lease negotiations to be fair in their discussions with landlords, to always copy the landlord on any letter to their solicitor and to be clear in understanding what your next steps could be if you were to take a more formal dispute resolution approach.
While having a landlord who is committed to fairness is important, I think we can facilitate this in our approach to them when negotiating. They are entitled to ask for whatever increase they like. It’s where we end up that matters most. Where we end up often depends on how we approach the negotiation.
Negotiating a lease with a high street landlord is completely different to negotiating with a shopping centre landlord.
Mark, when you talk about negotiations with landlord is this via email or face to face. I am finging email negotiations time consuming but the landlord will not meet face to face.
Steve in this instance it was by email as they are located in Queensland and I’m in Victoria. Locally I’d do it face to face.
At least with email Steve you have proof.
Mark, its really valuable advise you give here. Landlords generally are simply looking for a fair market return on their investment. Lessees have increasing costs to their business to contend with and so do Lessors. As tenants we initially sign leases which allow for regular fixed or market increases and reviews. Lessors are banking on those and responsibly we should as well in our budgeting. When times are tough lessees try to decrease rents to help maintain our viability these decreases directly impact the lessor. When times are great do we offer more rent? So what gives us the right to think the Lessor should share in our losses but not in our profits? Negotiating a fair middle ground when market reviews come into effect is responsible and respectful to both sides.
Good advice michelle. What happens when the lkandlord promises certain things like tenants etc and it does not happen and it affects the business. Should and can we talk with the landlord about rental reduction even though it is not in the lease?
The key is to have everything documented. This is why I prefer discussion by email as there is a trail. I missed out on a new shop earlier this year because I wanted the details to be put in writing. The landlord, not a major landlord, wanted it all done verbally and that made me suspicious.
Steve, in Victoria we have a wonderful thing known as the Retail Leases Act of 2003 (this replaces the old Retail Tennancies Act) I am fairly sure there are equivalents in each state. Under this act both Landlords and Tenants have rights, responsibilities and remedies. If your landlord has acted in a manner that is deceitful or affects your tenancy you have rights. A quick phone call to your solicitor (best to use the one you used to check the lease in the beginning) with the details of what has occurred and you maybe very surprised to discover that your rights actually are. The one thing you do not want to do under any circumstances is jeopardise your lease by withholding rent without the proper notices being issued. If you are in breach of your lease your rights are diminished.
I have been offered a lease extension in a shopping centre for a further 3 years. When you do the maths out till the new lease extension expires (2022) the lease cost will have increased by 41% over the last 8 years.
The business is in a major shopping centre, can any one give some idea what the range of rent to sales % should be please. I am naturally concerned with the rental escalating out of control in future years
As per my benchmark guide, occupancy cost should be around 11% of revenue where revenue is product revenue plus agency commission.
It is essential this benchmark is watched to ensure the business is doing what is necessary to stay within the band.
Steve, if you are in a group, engage their lease experts to guide you. If you are not in a group, look at your P&L. If it is healthy then it would be hard for you to make a case. That said, the best starting position is a decline in the first year of the new lease. That gets you to a better base. I have had success at this with major landlords.
The next step is to reset the business for a new GP model, targeting considerably above average for the business there landlord thinks you have. Then, not relying on the landlord to bring in shoppers.
All of this is achievable in any location including high street and major centres.
minor typo, major difference in meaning “The next step is to rest the business for a new GP model, …”
would you mean for readers
“The next step is to RESET the business for a new GP model, …”
Great blog on all things “High St”
Thanks John, fixed.