We run a small retail shop and sales have been down for about seven months. I approached our landlord to ask for a temporary rent reduction. He said he would consider it if we signed a new three-year lease at a higher base rent after the concession period. I did not want to commit to that in this climate, so I asked for a six-month deferral instead. He refused and said he had other tenants waiting. That was two weeks ago. Now I am not sure if I should push back or just try to survive. Has anyone been through a similar conversation? I would like to hear what worked or what did not.
Commercial Lease
My experience trying to work out a rent deal during a bad slump
The other tenants waiting line is almost always a bluff. Ask him to put it in writing. If he cannot, you havr your answer.
We tried a deferral back in 2020. Landlord agreed to three months deferred, then added it to the back end of the lease. That felt fair at the time. But when the slump lasted longer than expected, the deferred amount became a big balloon payment. We ended up having to negotiate again from a weaker position. If you do a deferral, be clear about the repayment schedule and whether it can be extended. Get it in writing before you sign anything tbh.
What did your lease say about rent abatement? Some commercial leases have a clause for casualty or unforeseen events but most don't cover a bad market. Probably worth reading it again before you go back to him.
Three-year commitment in a slump is a bad idea.I would rather pay full rent for a few months and keep my options open than lock in higher rent later. But that depends on your cash position.
Also count how many vacant units are in your center or building. If there are empty spaces, the other tenants line is definitely a bluff. Landlords hate vacancy more than they hate a temporary reduction.
I do not have dire ct experience with a rent deal, but I have watched a few businesses in my neighborhood go through this. The ones who asked for a percentage rent arrangement seemed to get further than the ones who asked for a straight reduction. Landlord shares the downside but also shares the upsid if you recover.
Percentage rent rent only works if the landlord trusts your numbers. If you go that route, expect to show him your books or agree to a third-party review. Some landlords will not bother with that for a small tenant.
Could you sublet part of the space? That might take the pressure off without needing the landlord to say yes to anything.
Subletting usually requires landlord consent anyway. And if he is already being difficult, he may just say no.
One more thing. If you go back to him, bring a one-page proposal with the exact numbers. How much reduction, for how long, and what you are offering in return. It is harder to say no to a specific plan than to a vague request.
I checked the lease again and there is nothing about market downturns. Just standard force majeure which does not apply. The vacant units point is interesting. I counted four empty spots in our strip center this morning, so I will mention that when I go back. I am leaning toward asking for a shorter deferral with a clear repayment schedule rather than the new lease. Still not sure if he will move.