While some landlords say “No!” to tenant requests to renegotiate their leases, many tenants will have a similar reaction to landlord requests to renegotiate leases. In most cases, a tenant’s negative reaction is due to an imbalance in the perceived benefits the tenant would derive from a renegotiated lease versus the additional obligations the transaction would create.
Multiple reasons exist for a tenant to decline such a transaction, many of which are simply the flip side of the reasons landlords say “No!” 12 reasons why tenant should, and often do, say “No!” to lease renegotiation transactions include:
- Insufficient dollar amount of financial incentives offered by the landlord
- Structure of financial incentives or other transactional components do not support tenant’s business objective
- Delayed timing of financial incentives that results in diminished benefit and erodes NPV
- Too many restrictions placed on the financial benefits or other elements of the transaction by the landlord or lender
- Too long a lease term required by the landlord or its lender to justify other terms associated with the transaction
- Inflexibility on the part of the landlord in agreeing to non-financial or other business terms
- Lease document is too strenuous or one-sided, favoring the landlord
- Lack of faith by the tenant in the landlord’s ability to perform or deliver on commitments made, including the landlord’s ability to fund construction or service commitments
- Concern over lender’s willingness or ability to modify or decline renegotiated terms
- Tenant’s misinterpretation of current market conditions and achievable terms
- Unreasonable expectations of the outcome by the tenant
- Lack of qualified real estate advice and representation provided to the tenant
Other reasons may exist, as well, as to why tenants would decline the ability to reneogtiate their leases. This is not intended to be complete or all encompassing.
For tenants, it’s pretty simple; improve their terms, both financial and non-financial, to a point where it makes sense for them to extend their lease for a term that is commensurate with both the additional benefits they’ll derive therefrom and their own non-real estate business objectives. See! Wasn’t that simple?
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Real Estate Strategies Corporation is a respected corporate advisory and transaction services firm that provides thought-leadership, decision-making, planning, project management, and transaction execution services to finance and senior executives at management team-led public, private, and portfolio companies, and not-for-profit organizations. Under the leadership of its award-winning CEO, Andrew Zezas, RealStrat’s clients engage the firm when acquiring, disposing of, renegotiating, or enhancing occupied leased or owned real estate in New Jersey, Pennsylvania, New York, Connecticut, and throughout North America. By creating and executing Business DRIVEN Real Estate Solutions and identifying hidden Opportunities, RealStrat drives greater operational and financial performance in support of its clients’ stakeholder objectives, M&A requirements, and exit strategies.
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