Top tips for negotiating business rent reductions

Rent relief. A man at home holds a handwritten lettering.

For many small-business owners, the challenge of trying to pay rent when revenues have been significantly reduced by COVID has provided many sleepless nights. Some businesses are fortunate to be supported by government-mandated rent relief, others have to rely solely on their own negotiation skills.

Over the past 18 months, I have been working with tenants and landlords of commercial properties to assist in negotiations or mediate disputes regarding renegotiation of rent. While some landlords have been incredibly generous, others have been less so. Based on my experiences, I offer the following tips to make your negotiations as smooth as possible.

Tip 1 – Don’t avoid the issue

Many of the disputes that came to mediation arrived there because the tenant ignored attempts by the landlord to discuss the situation. They avoided the conversations for various reasons – from being afraid, to knowing what to do, to focusing on rebuilding the business and not prioritising the rent over other issues.

Regardless of the reason, it sends a message to the landlord that the tenant doesn’t want to pay the rent and doesn’t care about the landlord’s issues. This means the landlord is likely to be much less concerned about the tenant’s issues. It is much better to have a conversation with the landlord than avoid it. Even if the conversation is difficult, you may be able to protect the relationship and facilitate the landlord to work with you to a workable solution.

Tip 2 – Understand the landlord’s perspective

In such stressful times, it is easy to focus on the challenges for your business and your own financial difficulties. At the same time, your landlord will also have financial challenges. Those challenges may be smaller or larger than yours.

A failure to recognise the difficulties of the other party often leads to more complex negotiations. It is easy to get to a situation where a party becomes stubborn because they feel they are being ignored. While you don’t have to agree with the other party’s situation. It is important to at least hear their perspective on where things sit. Once you hear their perspective, they are a whole lot more likely to hear yours.

Tip 3 – Pay something

Under most of the rent relief regulations, if the tenant is trading and earning a percentage of the revenue that they previously earned, they are liable for that percentage of their rent on the due date. If your business is trading, it is helpful to estimate the proportion of rent payable and make at least some contribution to the landlord while rent relief negotiations proceed.

I’ve seen many tenants who agree that they owe some money to the landlord, but refuse to pay anything until the rent relief agreement is finalised. Without seeing money in the bank, the landlord often sees this as a meaningless promise. They are more likely to believe the tenant is trying to take advantage of the negotiations to delay payments. That negatively impacts the tenant’s ability to negotiate a suitable outcome.

Tip 4 – use an independent neutral

Where the relationship between you and your landlord has been damaged, bringing someone less emotionally involved in to assist can help. Check if your state offers free or low-cost mediation or find a private advisor to assist. Someone who is experienced in dealing with conflict can smooth the path to an agreement.

Rent relief negotiations are without a doubt, fraught with challenges. The emotions can be running high. And the legislation is, in many instances, quite unclear or open to interpretation. Recognising the challenges of both sides, and trying to work together in a constructive business relationship will be the best way forward.