Lessons from a BoeFly funded franchisee: Lease Renegotiation Is an Important Tool

Jessica SarterBoeFly In The News

Historically challenging economic conditions require small business owners to keep all options on the table.  We recently paid a visit to a franchisee who successfully secured a loan BoeFly.  Over delicious food in his sparkling quick service restaurant, this hard-working owner-operator of a top-100 franchise brand (according to Franchise Times) explained how he successfully renegotiated his lease.  By following some important rules, this QSR owner-operator prevented a certain lose-lose situation for him and his landlord.  While we may not describe the result as a ‘win-win’ for the tenant and landlord, we know that avoiding a ‘lose-lose’ is always a good thing.

Here are four points to consider when considering a lease renegotiation:

  1. Start with a Good Tenant-Landlord Relationship – The underlying proposition of any renegotiating is that a landlord is better off keeping a tenant in place rather than sourcing a new tenant. The landlord doesn’t know what price a future tenant will accept, nor do they know how reliable the tenant will be.   The old adage of: The devil you know is better than the devil you don’t know’ comes to mind.  Retaining a historically responsible tenant will make it an easier pill for the landlord to swallow.
  2. Use Data to Make Your Case – The tenant’s role in the renegotiation is to convince the landlord that the value of the space has dropped and that the landlord is looking at a meaningfully lower rent with a future tenant, plus vacancy time.  It is critical that the tenant makes the case with cold hard data points. In the end, only comparable rents will convince the landlord that renegotiation is their best course.
  3. Use Clear, Consistent Communication – The landlord shouldn’t be surprised when you ultimately ask for a rent reduction.  Business owners should keep the lines of communication open with all their key constituencies – suppliers, franchisors if relevant, and landlords – particular in challenging times.  The sooner you communicate your objective, the more likely you are to succeed.
  4. Be Prepared to Find an Alternative – Ultimately, to succeed in a lease renegotiation, a tenant must be willing to break their lease.  To do so will present enormous implications which mustn’t be taken lightly.  However, if the terms of the lease are so out of line with the market, or so negatively impacting the business , this option can’t be ignored.  And in fact, if the tenant is not willing to truly take action, the landlord has little incentive to re-open lease terms.

For information on how to help secure a business loan, visit www.boefly.com.