Retail sales in Australia across many sectors are struggling in 2024, with businesses facing unprecedented challenges. Insolvency rates are soaring, and hardship requests from businesses are at an all-time high.
If you’re a commercial tenant feeling the pinch, you’re not alone. Thoughts like “I can’t pay rent,” “I need to negotiate my lease terms,” or even “How can I get out of my commercial lease?” might be on your mind.

The good news is that there are steps you can take to navigate this tough situation, but you must be proactive.

Step 1 – Assess Your Situation

Understand Your Financial Position

Before taking any action, it’s crucial to have a clear understanding of your financial situation. Review your sales, profit and loss statements and projected forecast. Knowing your numbers is essential, as these figures will be part of any negotiation or hardship request.

Step 2 – Evaluate Your Lease Terms

Review the terms of your lease thoroughly to know your legal obligations. Take note of the rent payable, any additional outgoings, and the remaining term. You should also note any current arrears.

Step 3 – Negotiation: Your Key to Survival

Negotiating with your landlord is not just important—it could be essential for your business’s survival. The sooner you start this process, the better. Many landlords are aware of the current economic climate and may be more willing to negotiate than you think.

Keeping lines of communication open is a far better approach than avoiding their calls. You just never know; your landlord may wish to help you through a difficult period but if you avoid communication, you will never know.

Be Prepared

When you approach your landlord, it’s best to be prepared. Gather all the necessary documents, including a copy of your lease, details of rent and outgoings payable, and your financial position. Being well-prepared shows your landlord that you are serious about finding a solution.

Come with a Solution

Don’t just present your problems—come to the table with potential solutions for your landlord to consider. Whether it’s proposing a rent reduction, a temporary rent freeze, or an extended lease term with revised terms, having a well-thought-out plan can make negotiations smoother and provide a starting point for discussions. There can be numerous solutions that work for both parties.

Engaging Professional Help

Sometimes, the situation might be too complex to handle on your own. Engaging an independent third party can be a game-changer. Professionals in this space have the expertise to navigate commercial lease negotiations and can help you explore all possible options. They would have seen it all before and have a range of solutions that may be the difference to finding an agreeable position.

What to Have Ready

If you’re engaging professional help for your mid-term commercial lease negotiations, it’s helpful to have the following information at hand:

• Copy of the lease
• Details of rent payable and outgoings
• Current arrears
• Remaining lease term
• Your business structure (e.g., corporation, corporate trustee, individual)
• Information on any guarantors and their assets (personal or things like bank guarantees)
• Up-to-date sales, P&Ls, and forecasts

You likely know your landlord better than any third-party negotiator, so sharing insights about your landlord’s personality and business approach could influence how the professional approaches the process.

Only agree to terms you know you can deliver on

A key to ongoing success between the landlord and tenant is to do as you say. Plan accordingly on the terms that you are confident you can achieve. It is more detrimental to promise the world only to fail. This will inevitably erode any goodwill that was previously in place.

Potential Negotiation Outcomes

If negotiations are successful, you might secure reduced rent for a defined period, a temporary rent freeze, or even revised lease terms that better suit your financial situation. These adjustments can provide much-needed relief and allow you to stay afloat during tough times.

In some cases, negotiating an exit from your lease may be the best option for all parties. While this is not ideal and can be a very hard decision to make, it can prevent further financial strain and stress, giving you the space you need to regroup and consider new business strategies or locations. Sometimes its better to deal with the inevitable rather than slowly failing.

Navigating a commercial lease during tough economic times can feel daunting and overwhelming, but it’s not insurmountable. There may be viable options to keep your business going, and there are professionals who can help.

The team at Australian Lease Management are experts in commercial lease negotiation and have helped many people through these difficult situations.  If you need help, we offer an obligation-free first phone call to discuss your situation. Please call…what have you got to lose?