What makes a good deal?
It is important to realise that generally, successful negotiations require great knowledge and a bit of compromise. Both you and the other party will have a desired outcome in mind and the ultimate result will likely fall somewhere in between those two objectives. We believe it is important to strive to create a conversation that is respectful and clear to understand each parties’ desires. It is often only then you can find a resolution which hopefully is a win-win for both can be found. While this is an ideal theory, sometimes one party may have the upper hand or simply they are not realistic in their expectations, therefore finding a balanced solution is more difficult. It is at these times; the best course of action perhaps is to not do the deal and walk away. More often than not there will be another one just around the corner…and it may be even better.
Here are five important strategies that we believe will help during a lease negotiation:
1. The negotiating process is a sequence of many events, not one individual conversation
Good outcomes can be a result of good relationships and relationships must be developed over time and if possible, well ahead of commencing the negotiation. Because of that, you should be constantly looking for opportunities to enhance the relationship and strengthen your position for when you need it. Having a reputation to be fair to deal with allows for more opportunities to come your way. Understanding both parties’ financial obligations and limitations are also a great advantage prior to commencing negotiations. Take the time to manoeuvre back and forth during negotiations until all lease terms (including things like rent, rent reviews, term, security obligations, incentive, plus others) are acceptable and this will give a good chance of success. It is no good for a tenant to agree to terms that will have the business fail just as it is not good for a landlord to push for an unrealistic deal that will cause future issues.
2. Think positive
Many people underestimate what can be achieved because they do not perceive the power they have. In many lease negotiations, it is usually financially better finding a solution with the current parties rather than having to find new ones. The opposing party may appear confident but be assured, both have things to gain and lose and understanding the market is also crucial. You must believe that the other party needs what you bring to the table as much as you want the negotiation to be a success. Be sure that that positivity is visible during the negotiation and is based on good, comparable, up-to-date data.
3. Prepare well
With any lease negotiation (brand new tenancy or a “sitting” tenant), information is crucial for a successful outcome. Research other rents nearby, deals achieved for other similar businesses, how the centre or area is performing plus talk to others about any sensitive points of the other party. There needs to be a combination of what rent is likely and how does that work in my business for its future viability. Basically, the more knowledge you have about the situation, the better position you will be in to negotiate. As part of your preparation, you should answer the following questions before engaging:
- What outcomes are we seeking through this lease negotiation?
- Who cares about those outcomes?
- Who can do something to bring about those outcomes?
- How can we engage, directly or indirectly, with parties in achieving those outcomes?
4. Think about the best & worst outcome before the negotiations begin…and set clear goals
Do not be upset or surprised if things do not go your way. If you have done your homework, you should have a good idea of where the range of terms will fall prior to starting the negotiation therefore going into the negotiations with clear expectations is key. In instances when you are surprised, it is a good time to re-evaluate all positions and if the opportunity allows, return to the table. If the terms are well outside your expectations, it may be wise to walk away. When confronted with opposing parties who seem to have more leverage, the natural tendency is to look for ways to weaken that leverage—to find walkaway alternatives and issue threats. A hollow bluff most likely will be called weakening your position so this tactic needs to be strongly considered. Such attempts often come up short or undermine deal success. The lesson here is when negotiations hit a wall, offer the other side new or various opportunities and add various components to the deal instead of focusing just on the price. Try and be a little creative.
5. Pace of negotiations
Many people try to speed up or slow down negotiations to put pressure on the other side to get the upper hand. But pressure tactics often backfire. Careful consideration of how the other side is likely to respond should guide you when to accelerate, slow down, or pause a negotiation.
Five questions can help you strategically manage how to maximise timing:
- What changes in the external factors might increase or decrease the importance of the deal for each party?
- To what extent can you use additional time to strengthen our walkaway alternatives?
- To what extent can the other side use additional time to strengthen its walkaway alternatives?
- What events or changes in the marketplace might adversely affect the strength of our walkaway alternatives—and the other side’s?
- What financial pressures/obligation does either party have that will influence their decision?
The team at ALM have seen just about every situation when it comes to lease negotiations and have helped countless clients navigate their way through the tricky and unpredictable path to a resolution.
Our advice is to always be armed with relevant, well researched information prior to engaging in any lease negotiation. You may be the world best owner/operator of your chosen field and know everything about it due to your vast knowledge and experience but the wise and successful know what they know and what they do not. They seek help from experts in the field that may be your accountant or a company like ours who lives and breathes lease negotiation.
You generally only get one chance to secure your best deal possible when negotiating a new lease term and once the deal is done and documents are signed, both parties must live with the agreed terms. It is therefore crucial to take the time and seek help to get this critical part of your business right.