In What You Need to Know Before Negotiating Your Lease we explain two of five essential elements of a successful lease negotiation, that happen before the negotiation. In this article, you will learn the final three elements that must occur during the actual negotiation.
Creating a Positive Experience During Negotiations
Creating a positive experience for both you and the landlord, or their agent, is important for several reasons. Psychologically, people remember events and feelings for a longer time than they remember facts and figures. The same is true in negotiating. Both you and the landlord will remember how you felt about the negotiation long after you have forgotten even the financial details.
A Long Term Relationship
Why is creating a positive negotiating environment important? There are a few reasons. You will be working with your landlord for a long time: five to twenty years, or more. If you need something from your landlord during that time, you want them to be open and willing to work with you. A positive negotiating experience helps.
Paving the Way for Successful Lease Renewals
Your initial lease negotiation with a landlord not only sets up the relationship during this lease, but also impacts the negotiations of your future renewals. A landlord who had a negative experience is more likely to be difficult to negotiate with at the time of renewal.
Likewise, if you are at odds with the landlord during the negotiation, they will be more likely to dig in their heels and make it harder to get the concessions in the lease you want.
A positive experience doesn’t mean you give away your deal aspirations or criteria to please someone. The experience is framed in the way the negotiation occurs.
The Art of Compromise
Contrary to popular belief, there is no such thing as a WIN – WIN outcome in a negotiation. Both sides will have to give some things up in order to complete the lease. Once the landlord and tenant have committed to completing a lease, mentally, an agreement won’t be reached until each side feels they can accept the amount of risk and the exchange of value in the transaction. This is an acceptance of a lesser position for both sides rather than a win for both.
A true Win/ Win negotiation occurs when both parties feel good about how the negotiation transpired. So the win/win isn’t really the outcome, the win/win occurs during the negotiation. It is the experience not the outcome.
Understanding the Trading of Value in Negotiation
The next essential element to successful negotiation is the trading of value. At its simplest form the value being traded is the space you get in exchange for your rent. But it is also about valuing the space more than the money you are paying for it.
As discussed above, there are different types of value that can be tradedduring the negotiation process. Here are three strategies to employ.
- Quid Pro Quo. This is a Latin phrase that roughly means you get something if I get something. If the landlord wants something, you must always ask for something in exchange.
- Alternatives. This is where you counter the landlord’s position with an alternative solution. For example: the landlord says the rent is $30 per square foot and you provide an alternative of $25 per square foot. Offering a counter alternative is one of the most important negotiating tools you can use. However, it is important to always know what alternatives you can offer and to what degree. Many times, business owners either suggest too little or too much. Returning to our example, If the tenant countered a $30 rent with $10, the landlord will perceive the tenant as not a credible tenant for their property given the disparity of the positions. Conversely, countering at $28 may leave too little negotiating room and money on the table.
- Seek Options. This is different than providing an alternative because you don’t suggest an option. Your job is only to suggest the landlord may have an alternative to their original position and ask them what it might be. This gives you a number of negotiating benefits, because you are asking the landlord to come up with a potential solution.
The Importance of Leverage
The final essential element is leverage. The person with the most leverage has the strongest negotiating position.
That is why you should negotiate on more than one location at the same time and why you want to continue to reinforce your value to the landlord throughout the entire negotiating process.
Other leverage tactics include looking at areas that are oversaturated with a particular type of business, and offering an alternative. For example if there are a lot of salon businesses in an area, offering to lease the space for a café or restaurant. The landlord will likely want to diversify a neighbourhood, so that his tenants continue to thrive and pay their rent.
Alternatively look at up and coming areas, although there will be higher risk for your business, it will also provide you with great leverage. Developers and landlords often court their first tenants, as they encourage others to the area.
Finally consider the timing of your lease. Like with every industry there are slow times of year for leasing properties. Try to target those times so that you are the landlord’s chance to close a deal this quarter.
The Five Essential Elements of a Successful Lease Negotiation
You now know the five essentials that need to be in place for a successful negotiation.
Both of these elements are done by you before you negotiate a lease, and then during the negotiation you:
- Create a positive experience
- Use value to keep the negotiating power, and
- Carefully use leverage