How to Handle Tough Tenant Negotiations in Commercial Real Estate Brokerage

Some tenants in commercial or retail real estate can be tough to negotiate with.  That is largely because they fail to accept market circumstances and negotiation protocols; for their own reasons those tenants can be positioning for ‘their deal’ and hoping to achieve it.

So how do you handle a ‘tough tenant’?  It is up to the agent to ensure that the landlords position and targets are maintained through to the very end of lease negotiation (be it successful or not).  The professionalism of the agent must prevail to the very end.

Here are some of the typically standard ‘tenant standoffs’ in a commercial or retail lease negotiation:

  • They want to get early occupancy before the lease is signed
  • The asking rents are they believe too high
  • They don’t want to pay outgoings
  • The bond or guarantee is too much
  • They don’t want to pay the lease deposit
  • The tenant wants to lower the rent review amounts or frequency
  • They delay signing the lease
  • They want an unrealistic lease incentive to negotiate
  • They want the keys early for ‘measuring up’
  • They are comparing one property to another before signing the lease
  • They don’t want to pay for lease documentation or try to use only a ‘generic lease’

The only bargaining power that a landlord has is up to and before the signing of the lease.  Until such time as the lease is signed and accepted by all parties, the tenants should not get access or concessions.

Here are some tips to help you handle those ‘tough tenants’:

  1. Maintain up to date market rent information to help your negotiations with all tenancy types and locations.  Understand the different rent types and improvements that could have an impact on lease negotiations.
  2. Qualify tenants fully before you take them to the property for an inspection.  There are many levels of qualification so make sure you have all the ‘honest’ facts and property requirements of the tenant; understand that you are talking to the ‘real decision maker’.  When in any doubt ask more questions rather than take them to the property.  The onus of  proof is on them and not on you.
  3. Be prepared to walk away from an unrealistic lease offer.  Hold out for the best market rent for the prevailing lease situation.
  4. Know the standards of leases that can be used in different properties and rental structures.  Match the landlord’s investment requirements to the best lease structure and conditions.
  5. Track outgoings as they exist in your area for the property type and location.  The recovery of outgoings will be an issue in many landlord and tenant negotiations.
  6. Whilst the tenant may say they are under pressure to get into the property and want ‘early access’, do not allow that access to occur.  When a tenant gets into a property, they then have very little motivation to sign the lease.  Many a landlord or leasing agent has been caught out by doing exactly that.
  7. Do not take ‘verbal offers’ or ‘verbal proposals’ from tenants.  If they are genuine they will sign a formal letter of offer and pay a reasonable deposit.  Until such time as you have something in writing, you have nothing to work with.
  8. Take a good size deposit for and as part of the lease negotiation.  For a 1 year lease take at least a 1 month’s rental deposit in advance from the tenant.  For a 2 year lease take a 2 month rental deposit, and for a 3 year lease take a 3 month rental deposit.  These monies are in addition to any cash bond that may be required by the landlord as part of lease negotiation.
  9. All facts of the lease negotiation should be written down and noted on the lease file.  Tenants and landlords can forget or selectively overlook what was said or done earlier as part of a negotiation.

So there are some very relevant things that you can do here in working with tenants in a ‘tough’ lease negotiation.  The secret to handling such as situation is in having the market knowledge and negotiation skills to back you up.

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