Woody Allen said that if you want to make God laugh, tell him your plans. Humour aside, most people’s plans have little if anything to do with what actually happens in either their business or their personal lives. There are simply too many uncontrolled variables to plan with significant accuracy, especially many years down the road.
A lease is a prime example of how difficult planning many years into the future can be. A lease is an agreement between two parties based on specific circumstances when it was written. A lease may include facilities to accommodate eventualities as time passes. The more adept and skilled the person negotiating the lease, the higher the probability that they will negotiate facilities into the lease, and phrase each clause of the lease to give the tenant the highest probability of successfully navigating through tenancy issues, which can and will arise, whether they are predicted or not.
In this context, here’s something that is really important to know and to think about.
As a tenant during a lease negotiation, you are asking the lord of the land for some level of cooperation, primarily to monkey around with the wording of the lease, and the business terms and conditions of the tenancy. In this negotiation, the tenant is almost always in a requesting or subordinate position. Asking for any cooperation or concession, even to change a word, in the wrong way will lose the landlord’s willingness to cooperate or provide any concession.
There is a certain approach to effectively negotiating a resolution that needs to be followed for maximum results. I have listed some key considerations below.
1. Your negotiating representative should know more than the landlord. Lease phraseology needs to be written, and tenancy terms and conditions negotiated from the perspective of experience. As time passes and circumstances change, the true meaning of each clause, facility and term will come into focus. If they were properly negotiated, the correct position for the tenant will be provided. If your negotiating representative does not personally have many years of experience negotiating commercial leases, they will not know what they don’t know, and they will not plant the seeds in your lease for opportunities to blossom many years down the road.
2. Approach the landlord as though he/she is a family member. Harassing, bullying or badgering a landlord will result in a mess. Your negotiating representative should approach the landlord with quiet confidence and respect – the landlord will respond in a like manner. After all, they are just people trying to do their job. Getting harassed by someone half their age with no experience will not result in a favourable outcome. Not only is that behaviour offensive, but it tells the landlord that you, the tenant, may be anxious which is a dead giveaway, destroying your negotiating position. You can tell how your representative will approach the landlord. If they are harassing you into signing their contract, you can bet they will try to harass the landlord, and your lease will not be properly negotiated.
3. Negotiate resolution. Most landlords are sophisticated negotiators. The game is quid quo pro, which means trading things of equal value. During a negotiation, your representative, in real time, has to assess what has value to you and what can be traded away in exchange for perceived value. If your representative doesn’t have the experience or training to recognize or adeptly play this subtle game, they will “give away the farm”. One of the common mistakes my firm corrects is that inexperienced representatives will trade away present value in exchange for unequal future concessions simply to justify their large fees. Trading the first three months’ rent free in exchange for dollar a square foot for the remainder of the term doesn’t make sense; and you, as the tenant, will never know your representative did this to you.
4. Don’t burn bridges. If your negotiator pushes the landlord too hard, the landlord will remember and “get you back”. “Winning” during a negotiation doesn’t mean scorched earth. It means getting the job done effectively, efficiently and ethically, achieving maximum benefit for the tenant. For example, consider the value of an extra dollar per square foot compared to the value of an option to renew. If a landlord is pushed hard for rent and the tenant loses an option to renew as a consequence, how did the tenant “win”?
One of the common mistakes my firm corrects is that inexperienced representatives will trade away present value in exchange for unequal future concessions simply to justify their large fees.
5. Do not use deception or trickery. Deception is the mark of a true amateur. Sure there is posturing and acting, but if your negotiator gets caught “adjusting” a document without involving the landlord, or not telling the truth, the landlord will be suspicious throughout the negotiation and will not cooperate. A simple slip can cost you big bucks, but no representative is going to tell you they got caught! You will end up paying a premium for a poorly negotiated lease.
When choosing your negotiation strategy, keep the points outlined above in mind. Make sure you or your negotiating representative are transparent, experienced andapproachable.PA
Mr. Toms is president and Broker of Record of Realty Lease Consultants Inc. He has been creating and preserving realty leasehold value since 1986 and can be reached at (705) 743-1220, by e-mail at ian@realtyleaseconsultant.com, or through his web site at: www.realtyleaseconsultant.com.
