Tips for Negotiating with Landlords Amid COVID-19

The COVID-19 pandemic has thrown a wrench into the gears of the global economy, leaving businesses, particularly brick-and-mortar retailers, scrambling to stay afloat. For many, the biggest fixed cost – rent – now looms as a daunting hurdle. Before succumbing to despair, retailers can approach their landlords with a well-honed negotiation strategy, one that acknowledges the challenging landscape while seeking mutually beneficial solutions.

Stepping into the Landlord's Shoes: Empathy and Understanding

Effective negotiation begins with empathy. Recognizing the landlord's perspective is crucial. Landlords, managing their own financial burdens and potentially facing institutional debt covenants, may be hesitant to set precedents with individual relief packages. Open and transparent communication is key. Prepare to share financial information (under a non-disclosure agreement) to substantiate your request and demonstrate proactive cost-cutting measures. A tenant who has exhausted all other avenues for relief will garner more trust and cooperation.

Beyond Rent Reduction: A Creative Spectrum of Options

While rent reduction is often the first thought, consider diversifying your proposals. If your financial footing is solid, a prepayment discount could be attractive to a cash-strapped landlord. For high-performing locations, offering a lease extension in exchange for temporary relief can be a win-win. Similarly, consider relocation within the property to a more suitable space as part of a relief package. Remember, short-term relief with a provision for revisiting the situation later can be easier to achieve than long-term solutions. Sharing projected sales figures, again under a non-disclosure agreement, can pave the way for revenue-based rent adjustments, a fairer option for both parties.

Beyond the Bottom Line: Exploring Non-Monetary Concessions

Don't be confined to rent-centric solutions. Review your lease and identify concessions that hold value beyond immediate financial relief. Can you secure the right to sell additional product categories if the tenant mix has changed? What about adjusting operating hours or loosening restrictive clauses? A most-favored-nation clause, guaranteeing you the best terms offered to any other tenant, can provide valuable peace of mind.

Leveraging Strength and Understanding the Moment

If you lease multiple properties with the landlord, strategically assess profitability. Offer full rent on profitable stores and extensions on their leases in exchange for relief on struggling locations. You can even package the surrender of underperforming locations with good ones, as landlords may value properties differently. Remember, bankruptcy judges tend to be sympathetic to businesses affected by unforeseen circumstances, so understand the leverage this holds without overplaying your hand. Explore alternative sources of rent coverage, such as security deposits or letters of credit. Check your insurance for force majeure coverage and its potential to provide relief.

A Collaborative Approach in Uncertain Times

Businesses, especially struggling retailers, are facing an unprecedented crisis. Approaching landlords with a well-considered, collaborative negotiation strategy, one that acknowledges their concerns while proposing creative solutions, can yield successful outcomes in these uncertain times. Open communication, transparency, and a willingness to explore options beyond the traditional rent reduction can bridge the gap and pave the way for mutually beneficial arrangements, allowing both parties to weather the storm and emerge stronger on the other side.

Additional Considerations:

• Local regulations and tenant protection laws may offer additional avenues for relief.

• Seek legal counsel for complex leases or situations involving significant financial distress.

• Maintain professionalism and respect throughout the negotiation process.

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Remember, in this unprecedented situation, a collaborative approach that prioritizes open communication and creative solutions can lead to successful rent negotiations and help both landlords and tenants navigate the turbulent waters of the COVID-19 pandemic.