Commercial Leasing in a Recession - Plateau Negotiations
I've seen it before - dozens of times: just before its time to sign on the dotted line the Tenant asks for more. Maybe its new paintwork, new carpeting, a forgotten need for additional data lines or other requests. 18 months ago this would have fallen on deaf ears. Sign up, or we'll wait for someone else. Not so much take it or leave it as, "this has already been negotiated - and we won't put up with this".
Even worse are changes to economic terms. To a landlord, the definition of economic terms goes beyond simple rent terms. Any good landlord will tell you, pricing is an art form. The multitude of factors which go into pricing a lease include more obvious items such as the length of the lease, termination options, tenant improvements, but also include less obvious items such as insurability, services, cam charges and the complexity surrounding operating expenses, capital improvements and depreciation.
Taking advantage of changing bargaining positions is part of economic life, but the time to take advantage of this situation is during initial negotiations. We are now too often seeing tenants attempting to drive down the economics of a lease by requesting termination options, increased services and changes to typical operating expenses AFTER the terms have initially negotiated. This often occurs under the guise of legal changes to the lease.
Landlords: Do your best to be up front with prospective tenants and let them know this is your bottom line.
Tenants:
Understand your basic lease terms. Rely on your broker and your attorney. This recession may allow you to get away with plateau negotiations - constantly coming back to the table for more. But this will not last long. Landlords are readying themselves to turn away tenants attempting such negotiations on principle alone, especially if you are requesting lengthy lease terms or multiple options. It may no longer be worth it to the landlord and you may find yourself taking the time to renegotiate somewhere else - which is only fine if you have somewhere to go. The best advice is to negotiate hard up front. Plateau negotiations will only establish your reputation for future reasonable requests as being sneaky. Chances are, this will not work in your favor. Once your at the edge of the plateau, its easy to fall off.
