As a tenant improve your commercial lease arrangements with three actions.
RECIPE FOR SUCCESS INGREDIENT CARD
Ingredient
Keep Within the Law
Question:
How to Improve Your Commercial Lease Arrangement?
Answer:
Below we outline three actions that tenants can take to improve their commercial lease arrangements.
Action 1:
Approach your landlord to cap the annual rent increase. The significant problem is that most café and restaurant owners have signed leases where the annual increase is tied to CPI. With inflation now high and going up, CPI-tied increases hurt the business. Even though the ‘ink is dry’ on your lease, no one can stop you from approaching the landlord to request that the annual rent increase is capped. How you approach it matters, and here are a few guidelines:
•Do some research on your landlord and get past the leasing agent
•Request the rent escalation variation clearly and in writing, referring to the pandemic impacts and interest rates
•If you get a ‘no’, then ask again and ask better
•Seek to restructure your lease arrangements
If your current premises work for your business, but the lease terms are not tenant-friendly, then a lease restructure is needed.
Action 2:
This is more complicated than action 1 as it requires renegotiation to achieve a new lease with terms that better support the business. It is essential that you are clear on what lease terms need improving. Here are some guidelines:
•Include landlord obligations and incentives that make the leased premises more suited to your business
•Aim for a rent cap tied to a sustainable percentage of turnover
•Seek a cap for the annual rent escalation
•Increase your lease negotiation expertise
Action 3:
Almost all hospitality tenants could achieve more tenant-friendly lease arrangements. The obstacles are a lack of market insight, real estate expertise, and the way lease negotiations currently happen strongly favour the landlord. Here are ways you can increase your lease negotiation expertise:
•Review your lease and highlight the terms that hurt your business
•Subscribe to the LPC DIY online plan for R&CA members and work through the content
•Attend an LPC ‘Commercial leasing course – The tenant perspective’
There has never been a more critical time for hospitality tenants to renegotiate and/or restructure their lease arrangements. Always remember that everything is negotiable, but getting to a tenant-friendly outcome requires skill and persistence. (Source: Restaurant & Catering Association October 10, 2022).
Method
Starting and running your own food service business is hard work and not without risks, but it is also an exciting and satisfying challenge and can give you a good income, provided you are prepared to invest a lot of time and energy into making it successful.
