When your landlord’s ready to significantly raise the rent on your business, these 4 tips can help you negotiate a better deal.
Kelly Fitzgerald is frustrated—and with good reason. Her company’s landlord is raising the rent on its office space by 45 percent. Fitzgerald, co-founder of Breakaway Communications, a technology public relations and communications firm in New York City, has tried counter offering, but it’s a no-go.
“The current landlord won’t budge,” Fitzgerald says. “They don’t need to, because we are literally in the most expensive submarket in the world—Manhattan, Midtown South.”
Fitzgerald isn’t quite sure she believes it, but she says that’s what everyone in the real estate industry has told her, and her broker is having no luck finding a new place with a more reasonable monthly fee.
“The inventory of space is anemic,” Fitzgerald explains. “We’ve expanded our search area to accommodate less ‘hot’ parts of town, but again, [there’s] low inventory and what’s available isn’t very aesthetically acceptable. I think we’re going to be stuck paying $12,000 a month when we’re currently paying $9,000—and that’s before electricity and real estate taxes.”
A dramatic upsurge in rent is a problem every business owner can potentially encounter at the end of a lease, and unfortunately, there’s very little you can do if your landlord is set on raising the rent. Lloyd Parris, a Denver-based antique shop owner, found that out the hard way several weeks ago. The ABC affiliate in Denver ran a story on how Parris’ landlord suddenly decided to triple his rent. Parris, who’d run his store, Packrat Antiques, for 38 years, decided it was time to close up shop.
For most business owners, however, closing your doors isn’t an option. So if your landlord comes knocking for more money, here are four tactics you can try to negotiate a better deal:
1. Reason with your landlord. It’s worth a try, says Iryna Carey, a partner in the real estate practice at Kurzman Eisenberg Corbin & Lever LLP, a law firm in White Plains, New York. Although landlords have no legal obligation to keep rents reasonable for the tenant, Carey says, some will be more sensible than others, and you may be able to negotiate a better rate.
“You can point out that you’ve been a great tenant and remind your landlord of the benefits of keeping you there,” Carey explains, citing some of the downsides of finding a new tenant. For instance, before making the space available to rent, many landlords will have to “fit out the space,” industry lingo for paying for upgrades and renovations to make the place desirable for a new business to rent. The landlord will also incur broker fees. And if the landlord can’t find a new tenant right away, Carey says, the space might stand empty for months, effectively losing money for the landlord every month it’s vacant.
In short, finding someone new is going to be a pain in the neck. Reminding your landlord of all this might strengthen your case at the bargaining table.
“Another thing you need to ask yourself is whether you’re currently paying market rent,” says Ron Throupe, an associate professor at the University of Denver’s Daniels College of Business. “If you are, then certainly asking your landlord to explain the increase makes sense. If your landlord’s catching up from below market rental rates, however, there’s less chance of negotiating [a lower rate].”
Unfortunately, for most renters, current market conditions give landlords the upper hand. “The rental market is very tight right now with low vacancies even after rent increases,” Throupe says. “So it very much favors the landlord.”
One other thing that could be in your favor: whether your landlord is a single person or, as CPA and financial planner Jerry Love puts it, “a large publicly traded real estate management company. Then you probably don’t have much expectation for a relationship. It’s strictly a numbers thing when the lease comes up. Whereas if you have a person in your community who’s a landlord, you might have a better chance.”
Love, who started his own business, Jerry Love CPA LLC, three years ago in Abilene, Texas, is in year three of a five-year lease. He feels pretty secure that his landlord, who lives in Austin, won’t double or triple his rent when the lease is up.