GLENDALE, Ariz. — For the vast majority, the landlord/tenant relationship has different needs for each party, and most are in opposition.
For long-term success, it is important that each party understands that cooperation, compromise and civility go a long way. There can be clauses for dispute resolution but both parties would do well to first set their emotions aside when a dispute arises and attempt to find a win/win solution.
In Part 1, I began discussing negotiations. Let’s continue on that topic today.
NEGOTIATIONS
An equipment distributor as well as a lawyer can give you great guidance. I would consult with both before negotiating.
Landlords have an edge in that they write the lease. Obviously, they will write it in their favor. It’s up to you and your agent/lawyer, to read, understand and make any counter offers. Just because it’s written in the lease doesn’t mean that you must agree to everything. There should be a “give and take.”
Counter offers can help, along with giving in to what you don’t really need so you can get a “must-have” that you really do need.
You have strengths the landlord may like. Laundromats are “anchor stores,” meaning they will attract customers to a shopping center so they can shop at the other stores while doing their laundry.
Mats are recession-resistant, which is attractive to landlords. A laundry can be bought and sold multiple times over the years, but they rarely disappear, which can give reassurance to a landlord.
Landlords like to see a big investment in their properties. Since most mat builds/rebuilds can take six months or longer, ask for those months free to rehab your store. Get backup from your distributor or contractor to push this.
Keep in mind that you can negotiate and agree to “X” out and initial any line in the lease that you are not happy with. When you cross out a sentence, you draw a line through the wording and both parties must initial it! Everything is negotiable.
To enhance your renewal power, the best leverage you can have with a landlord is to always pay the rent on time! I can’t stress this enough. Landlords hate slow payers. You should have excellent credit ratings because they will check you out.
It also doesn’t hurt for you to help out the landlord from time to time. You may be at the building six or seven days a week, while many landlords rarely show up. A mat owner is probably the handiest, most building-savvy tenant a landlord could have. If you help out once in a while, and pay your rent like clockwork, you will become a dream tenant, one the landlord will not want to see leave.
In short, be nice!
In the end, commercial landlords always win. You may win a battle, or even two, but as the years tick away, you must convince your landlord that the risk for simply extending your lease at a reasonable rate is much lower than taking a chance with an unknown tenant.
Landlords want to make money just like you. This does not make them “bad,” but it does make most of their needs oppositional to yours. But your success is usually their success.
Before negotiating, make a list of your “must-haves,” “unacceptables,” “preferreds” and “not preferreds.” Once you have these lists, you have some structure for negotiating.
RENT INCREASES, OPTIONS AND DISPUTE RESOLUTION
Increases are usually stipulated either by percentage increases every year, or by a Consumer Price Index (CPI) formula.
There are all kinds of structures, such as “triple net” or “double net” leases, which will include some kind of “common area charges” that only seem to go up. Some landlords still use a straight format lease with percentage increases. My experience was 2-3% increases for this type of lease.
These are better explained to you by your lawyer because there can be big differences in how much you end up paying 10 years from now.
If you are adding options to extend your lease term, most landlords will require that you notify them in writing ahead of time. If you don’t notify them, you could lose the option, so pay attention to your option notification clause.
Since an option may not come up for 10 years, what options parameters are fair to both parties? I say it’s Fair Market Rental Value (FMRV), where an outside party or parties, agreed to ahead of time in the lease, determine FMV.
I had options at one mat with parameters instead of FMV. We agreed that after 10 years, the option increases would not be more than 5% or lower than 2%. When the time came, we ended up agreeing on 3%, which was the standard at the time.
How will any disputes be resolved? There are so many caveats on this topic alone that screams for a good attorney. Some leases assign an arbitrator agreed to by both parties.
Check back Thursday for the conclusion!
Have a question or comment? E-mail our editor Bruce Beggs at [email protected].