Turn Crisis into Opportunity....Intelligently! 10 Reasons Your Landlords Will Renegotiate Your Company's Leases

When there exists little or no demand for commercial real estate, why would your company simply offer its surplus leased real estate for sublease, and just sit and wait, and wait, and then wait some more? That's like trying to sell cheeseburgers and hotdogs at a vegetarian convention!
Offering surplus real estate for sublease is a business initiative. Why engage in any venture that has an extremely low probability of success, and an even lower likelihood of profit?

Unfortunately, if your company has no use for all of its real estate in a given location, then the approach below may not apply, and offering your space for sublease or assignment my be the best answer. If, on the other hand, your company has no further use for a block of leased real estate, plans never to occupy that surplus space again but, will continue to occupy other space in that same building or complex, your company may have other more viable opportunities available to it that may actually succeed and generate real profit!

Renegotiating your company's leases may prove to be more an opportunity than just a solution. In fact, it may be both! A lease renegotiation could likely provide a solution to your company's surplus real estate problem, while creating financial and operational opportunities from which your company could profit!

Through a lease renegotiation transaction, your landlord will likely consider taking back your company's surplus space in exchange for an extension of the term on the space your company will continue to occupy. That's the typical quid pro quo in these transactions...tenants and landlrods trade lease term (usually longer) for space (usually less) and other benefits. The success of your transaction will depend largely on a number of moving parts, including the amount of space your company wishes to dispose of, the amount of space your company will continue to occupy, the remaining term on your original lease, the length of lease extension to which you will agree, and more. How all of the above will affect your landlord, given the stability and / or vacancy of its building and its overall portfolio, as well as, many other factors, will play significantly into the levels of success your company might achieve.

Lease renegotiations have become very common. In the current economic environment, they can be effective tools to create benefit for both landlord and tenant. That's when such a transaction really comes to life! Companies that don't have surplus space may also realize opportunity by renegotiating their leases to secure operational and financial benefit by trading an extended lease term for lower costs, greater flexibility, enhanced business terms, and more.

Other goodies, both operational and financial, often become a part of lease renegotiation transactions. Lower short and long term rental rates; free rent; landlord-paid cash allowances; recalculated operating expense clauses and base year formulae to protect the tenant from drastic future occupancy cost increases while permitting the landlord to operate the building profitably and in a first class manner; improved business terms; greater flexibility resulting from enhanced options and rights; future growth and contraction protection; resolution of landlord / tenant disputes; and more, are often components, in various combinations, of a successful lease renegotiation transaction.

Lease renegotiations can be the right move no matter how many years are remaining on your company's lease. Certainly shorter remaining lease terms are easier for landlords to address, especially when the need to take back surplus space is part of a tenant's requirements. But, under the right circumstances, even leases with many years remaining could be candidates for lease renegotiations. So long as both landlord and tenant derive sufficient benefits, a lease renegotiation transaction would certainly pose less risk than offering space for sublease. Moreover, if your company is dissatisfied with the terms offered by your landlord under a proposed renegotiated lease, you can always terminate those negotiations and turn your focus back to subleasing. That assumes, of course, that your lease provides for subleasing rights that are not so restrictive as to impede your company's ability to achieve its objectives.

It is a misconception that only very large or very strong companies can successfully renegotiate their leases or achieve any significant benefits. That is simply not true. Sure, landlords prefer to deal with companies that they deem to be good credit risks. But, in these times, the definition of a good credit risk has changed. Moreover, the more a landlord's circumstance would be improved by a lease renegotiation, the less stringent they tend to be in their definitions of good credit risks and which companies they'll negotiate with. And, neither does size matter. Remember that landlords are in the business of deal-making. With such low current demand for commercial real estate, many landlords are not actively involved in as many deals as they'd like. So, your timing could be perfect. Simply put, if your company can offer a realistic benefit to its landlord, your company may be a solid candidate for a lease renegotiation.

Before considering whether a lease renegotiation transaction could work for your company, it would be wise to consider how such an approach could benefit your transactional opponent, the landlord. Without sufficient opportunity for the landlord to improve its position in your transaction, the likelihood of completing a successful lease renegotiation can be greatly diminished. Landlords will typically engage in lease renegotiations, because such transactions:


1. Create long term tenancies

2. Work toward stabilizing occupancies in a building and / or in the landlord's overall portfolio

3. Create the market perspective, whether real or merely perceived, that a landlord's buildings are more stable, have higher occupancy levels, and are therefore, better operated, more desireable, and in greater demand, which can result in other positive opportunities, including leasing, financing, purchasing, selling, development, investors.

4. Reduce landlord's future risk of vacancy, downtime, and lost rent

5. Can reduce costs associated with acquiring new tenants, such as advertising, marketing, and others

6. Typically create opportunities for landlords to refinance or sell buildings and / or secure relationships with new investors

7. Provide hedges against future declines in rents and increases in leasing incentives, such as free rent, rent reductions, relocation and lease absorptions, cash allowances, and more

8. Minimize a landlord's risk based on completing a transaction with an existing tenant with whom the landlord is familiar, the tenant's payment history, type of occupancy, use of the building, and more

9. May be viewed by a landlord as creating upside potential for additional rental income, when they include taking back surplus space

10. May create an opportunity for the landlord to accommodate the growth needs of other existing tenants, when they include taking back surplus space

11. Other


The above list is, by no means, intended to be comprehensive, as every landlord runs its business differently in comparison to its competitors. Each landlord will view lease renegotiations differently. Like each landlord, each tenant company will derive benefits from a lease renegotiation that will vary in comparison to what others will achieve.

A lease renegotiation, like any other business initiative, should first be intelligently planned by an expert qualified to advise on such transactions. Once realistic expectations are developed in comparison to the tenant's objectives, and assuming that those objectives could be met, only then should the tenant engage in discussions with its landlord about such a transaction, either directly or through its advisor.

Lease renegotiations most often pose less risk and require less time than offering space for sublease, especially in economic times like these when demand for commercial real estate is at a low. When planned and executed intelligently, lease renegotiations can prove to be both solution and opportunity for a company that is either in need of disposing of surplus space or one that has no surplus space but, seeks opportunity to enhance its operational and financial circumstance. Because lease renegotiations also provide benefit for commercial landlrods, they often make for superb "Win! Win! transactions for both sides.