Saturday, May 18, 2024

How Struggling Businesses Can Renegotiate Rent

Tens of millions of companies throughout the world are presently fighting to make ends meet, and the majority of economic activity is generated in people’s homes. Rent becomes a major but temporary unneeded expense component for offices, entertainment/hospitality, non-food retail, and industrial premises. It may be a critical managerial talent for surviving the crisis to be able to manage it. In this article, we go over the main points that every manager should think about before approaching their landlord to try to reduce this expense, as well as the main strategies that are likely to benefit both the landlord and the tenant. Finally, we go over some of the possible long-term consequences of these arrangements.

Understand Your Landlord’s Position

Understanding the landlord’s point of view is the first step in a successful rent payment discussion. While there are many various types of property investors that may hold your company space, the most significant factors to consider during talks are their financial situation, risk attitude, and capacity to absorb a rent decrease, as well as their contractual responsibilities.

Real estate, for example, is a popular investment asset for pension funds because it often generates a stable income that helps them meet their obligations. If your properties are owned by a firm that relies on income, it’s possible that seeing some payments (even partial ones) made is a top concern for them. Many buildings, and small f&b space for rent in Singapore on the other hand, are owned by investors who must disclose the value of their assets and income return on a regular basis (e.g. investment funds). Their top objective is to report positive results, and they care more about the total amount of payments than the timeliness of those payments. They could be hesitant to provide a discount but more ready to accept a postponement.

Propose a Solution

If your company is struggling to stay afloat, you may be unable to pay your rent and should try to renegotiate your current lease. Rather than just discontinuing the payments, we advocate approaching your landlord with a proposed solution. This provides you additional alternatives and lowers the dangers you’ll face once the crisis is over.

Consider the following factors while drafting an offer for your landlord:

Think long term

There are numerous aspects of your lease that you can probably change today that will not cost you any money but will benefit your landlord. If you are a good tenant, extending your lease for a longer period of time may be an appealing proposal to property owners concerned about rising vacancy rates in the future years, especially if the crisis continues. Hotels are an excellent illustration of this, as they now produce little revenue but have long-term business plans that rely on the buildings they operate in. Extending a lease with a reputable hotel operator may provide a landlord with the chance to secure a solid tenant who will stay in place, reducing the danger of an empty property during a recession.

 Share the risk and the reward

You may also offer your landlord a monetary incentive in exchange for enabling you to postpone or cancel your existing rent payments. It might be in the form of delayed rent interest or an income-sharing agreement.

Be entrepreneurial

Many established companies are currently in the situation that is normally reserved for start-ups: they are cash-strapped yet have the potential to produce revenue in the future. This implies they’ll be able to employ private-equity structures and concepts to keep their company afloat. This might entail paying creditors in cash, sharing asset ownership, or even sharing intellectual property rights.

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