Oct 06, 2009
by JIM KRESS of Central Oregon Community College
Given the downturn in the economy it is no surprise businesses are looking to cut costs by moving elsewhere. We typically think of our lease payment as a fixed cost, one which we have little control over. Not so in today’s tough times.
Before you look elsewhere, make sure you know what you are giving up. Ask yourself “What would I lose by moving?” You may have spent years of advertising telling customers where to find you. Are you sure you want to give that up? If your location is not the best, then try to determine what would improve your current location. If it is a signage problem you might be able to fix it. If it truly is the wrong location, then you should consider moving. However, before you move consider the following.
The landscape for both businesses and consumers has changed dramatically during this recession. From a business perspective, maybe the adjoining tenants who were a complement to your business have since moved or closed. Having complementary tenants nearby can be critical to your business success. If your location now has empty spaces nearby, consult with the owner to determine how committed they are to filling the space. Try to determine if they will be taking just any business for cash flow or if they will be looking out for your interests as well by finding tenants who create success for their neighbors.
In years past, the owner was always concerned about the tenant’s ability to meet their lease requirements. But given the number of businesses closing, you should consider the likelihood the owner may be forced to sell the property. According to Paula Van Vleck of COLM Commercial Real Estate, the new owner would be bound by your current lease. But the new owner may have different long-range plans for the property that might not be in alignment with your position. Make sure before you do anything you have met with the owner and determined their position on the property.
Whether you stay or move, you want to make sure you know how your customers shop. Are their behavior patterns different than they were before the recession? Does your location provide the convenience and access they want? Some customers may now be shopping in a whole new way given their financial situation, time availability, and the cost of fuel. Feel free to talk to them about the impact of your moving.
If you do decide to stay, now might be the time to renegotiate that lease. Rents have dropped dramatically, while vacancy rates have risen. It may be quite challenging for the owner to find another tenant in today’s market. He or she probably has thought of that, which gives you an advantage.
If you can’t afford your current rent, have a candid conversation with your landlord. Explain your situation, what you can pay and the impact if you cannot get a rent reduction. You should be prepared to show the documentation that supports your need for a rent reduction. You may even have to go over your operating budgets with your landlord. You may be able to move from a fixed rent to a percentage of sales to better meet your cash flow capabilities.
In fairness to the landlord, you should be prepared to have a conversation about an increase in rent when things improve. The timeline of when and how that will happen should work for both of you. You may be asked for a lease extension to get the rent reduction. To understand their position make sure you have done your homework in advance of renegotiating. Research not only the property where you are located, but other properties owned by the landlord as well as additional properties available in the declining market. Make sure you know what you need to stay successful. And don’t wait until the last minute. Start the negotiating process six months before the end of your lease.
Remember the bottom line is that retaining you as a tenant is better than having an