Property Services

Negotiating a lease, a process you can’t rush…

Over the past 12 months or so I have been involved in several lease negotiations with retailers where an impasse had been reached with both parties seemingly unable to work through their differences.

In all but one of these cases the deadlock was eventually broken and a compromise reached with both retailer and the landlord being happy with the final outcome. The negotiations were long and tedious, however it couldn’t be helped given the high stakes nature of the areas being negotiated.

Whilst the results achieved for my clients were very positive, the fact was the higher the stakes, the more the landlords involved had to loose, so the longer the negotiations took, but in the end it was well worth it. In all honesty the process was quite painful, I mean it was like having your teeth pulled, however it was a process that simply couldn’t be rushed as much as my clients (and I) would have preferred.

When I look at a prospective new lease deal, I usually have a pretty good sense from the outset as to how the negotiations are going to play out, not on all occasions, but most – usually the final outcome is pretty close to what I expected. Before the negotiations start I know that there is going to be a lot of posturing by the landlord (or their agent), a lot of back and forth bartering on key aspects such as rent, lease incentives, rent reviews etc, but I always think to myself, wouldn’t it be great if we could skip all the bravado and game playing and simply cut to the chase.

When I worked on the landlord side of the equation many years ago, I tried this approach with a very experienced retailer whom I knew well – we were negotiating a new lease during the course of a re-development of a shopping centre that I was managing at the time. I had to lease a lot of shops in a relatively short time frame, so I really didn’t want to go through the normal process of posturing, back and forth negotiations, as we both knew where the deal was going to land so I suggested that we just cut the deal without all the nonsense. Well, do you know what the response was from my retailer colleague…? Whilst he saw my logic and agreed that it was an excellent idea, it just didn’t feel right to him and besides, his superiors expected that there had to be a certain amount of horse trading, otherwise the deal would simply look “too easy” and might come across as being “soft”.

At first I was pretty irritated by the lack of logic, but then I thought long and hard about his response. This retailers’ response was fueled by pure emotion, then hit me like a lightning bolt, of course it was emotion, in fact it was a totally normal human reaction. I don’t know why, but we humans have an innate tendency to want to work though a process, to push back, barter, argue and negotiate.

In fact it starts at a very early age – for those of you with children, how often do you negotiate with your child to brush their teeth or eat that last spoon full of vegetables. They moan and groan, push back continually and when they finally give in, they will ask for something in return – “If I eat those peas, then you have to take me for ice cream on the weekend”. I bet more often that not you cave in, I know I do (perhaps we should ask our kids negotiate for us, as they are absolute naturals….?)

We’d all like to skip the moaning and whinging and simply have our children eat their vegetables without any compromise, however this is not going to happen – we have to negotiate and more importantly we have to take the time to explain why vegetables are good for them, what will happen if they don’t eat good food etc – it’s a process that is unavoidable.

The same logic applies to negotiating a lease, we simply cannot rush the process if we want to achieve a good outcome. I am not suggesting that we drag out negotiations for the sake of it where we don’t need to, I am simply suggesting that during the negotiating process there will always be compromises and it will probably take time, more time than you prefer – you have to be patient and realise that you need to horse trade and be prepared to give something away. The trick is determining what you can give away, how quickly and what you shouldn’t give away and the only way to know that is to plan your strategy well before negotiations commence, but this is a whole new topic in itself, so we’ll explore this in the next article….

Wish you luck in your lease negotiations!