by Jeff Grandfield and Dale Willerton - The Lease Coach
August 3rd, 2015
When The Lease Coach spoke at Parker Seminars in Las Vegas, we met a number of struggling chiropractors leasing commercial space. These chiropractic tenants desperately need a rent reduction ... right now. With whatever size of practice, business expenses are continually increasing and the high cost of leasing space is closing in on tenants. This can be due to any number of extenuating circumstances which you may have no control over (Obama healthcare as it relates to insurance coverage, for example). Your monthly rental payment to the landlord is one of your biggest monthly expenses. Therefore, reducing this monthly lease payment is imperative for practices like yours to stay viable.
If you were approaching the end of your lease term there would be hope for a rent reduction on the lease renewal. Unfortunately, many chiropractic tenants find themselves in trouble somewhere mid-term into a five- or 10-year lease agreement. If so, a commercial landlord can agree to a mid-term rent reduction for several reasons:
a) To avoid taking the space back: Replacing a tenant can be very time-consuming and expensive for a landlord. There are real estate commissions to pay, demolition of the existing premises to occur, months of lost revenue while the space sits vacant and so on. In addition, a new tenant moving into the space would probably also get a tenant allowance and free rent. It could be quite a few financial steps backwards for a landlord to replace your business tenancy, if he can at all.
b) Other existing or pending vacancies: If the landlord already has other vacant units within the same property, odds are greater he won’t want another vacancy. Even if the office building appears to be fully-occupied by other tenants, many of your neighbors may be behind in their rent or planning to close out entirely sooner than you might think. Several existing tenants may not be planning to renew their leases so the landlord knows that more space will be coming available in that property soon. These make for all the more good reasons for your landlord to keep your tenancy, even at a lower rental rate.
c) A Downward Shift in Market Rents: If market rents have reduced and the landlord is leasing space to new tenants at a lower rental rate than you are currently paying, then replacing you with another tenant is less desirable. Not only have you proven yourself as a more established tenant, the new tenant would be paying the lower (new market rental rate) making the landlord ultimately no better off.
d) Competitor closures: If other practices are closing out in your area then the landlord will be more motivated to keep you open, even at a lower rental rate. When any tenant closes out, the landlord (or the landlord’s agent) tends to look for a similar Use replacement tenant (i.e. another chiropractor). If no other same-use tenants want to take over your location the landlord is better off keeping you open.
Remember that landlords don’t lower rents for the sake of the tenant; landlords lower rents to help themselves retain a rent-paying tenant; receiving a reduced percentage of the rent is better than receiving nothing at all – especially if there are vacant units in the property.
How much of a mid-term rent reduction is possible? All tenants and their situations differ and results will vary; however, The Lease Coach recently successfully negotiated for about a 20% reduction on one tenant’s rent (equating to a $700/month rent reduction). Obviously, this tenant was absolutely delighted and told us “It’s about what I had hoped for, but I wasn’t really sure I could get that much … the resulting cost savings are nothing short of incredible! It amounts to over $37,000 over the remainder of the lease term and even includes an extra unexpected perk … since my new agreement exempts me from paying Common Area Maintenance/CAM (unless I default), I’m protected against increases due to CAM going up, which will be even more significant as the center ages.”
At the end of the day, if a landlord has to choose between seeing your practice close down, or giving you a rent break it might actually be easier, cheaper and more realistic for him/her to reduce your rent, right now, mid-term.
For a copy of our free CD, Leasing Do’s & Don’ts for Chiropractic Tenants, please e-mail your request to DaleWillerton@TheLeaseCoach.com.
Dale Willerton and Jeff Grandfield - The Lease Coach are Commercial Lease Consultants who work exclusively for tenants. Dale and Jeff are professional speakers and co-authors of Negotiating Commercial Leases & Renewals For Dummies (Wiley, 2013). Got a leasing question? Need help with your new lease or renewal? Call 1-800-738-9202, e-mail DaleWillerton@TheLeaseCoach.com or visit www.TheLeaseCoach.com.