Although the downturn in the economy has brought many obstacles to small business owners, it has also created opportunities that can provide leverage to foster growth and financial security for the future. An important example of this is the give-and-take that occurs between landlord and tenant in the negotiation of new commercial leases and the renegotiation of existing ones. Indeed, a carefully drafted, and well thought out lease agreement can serve to protect and enhance the viability of a business.
In order for lease negotiations to produce the right opportunities, a business owner must develop a full understanding of its own purposes in entering into the lease, the landlord’s actual or likely positions on “big picture” issues relating to the proposed deal and, in addition, the nature and extent of the proposed uses and operations within the leased space. This is a prerequisite to negotiations. Of course, a business owner should also be prepared to come to the table with an open mind and a willingness to compromise and consider creative alternatives. In such instance, the business owner may succeed in cultivating a (or improving an already positive) relationship with the building owner, as well as furthering and protecting commercial interests. For example, a tenant with a new business may be willing to expose itself to greater liability in the event of a default by signing a personal guarantee, for example, in exchange for some up-front assistance from the landlord, such as rent concessions during the first year of the term or contributions toward the cost of fitting out the interior of the premises. In these financial challenging and legally tumultuous times, business owners should give special consideration to safeguarding your rights in the event of insolvency or bankruptcy and in the event condemnation or destruction of the premises. Having the ability to assign freely your interests in a lease, especially to a newly formed or reorganized business entity and sublet or otherwise transfer those interests are also of paramount importance. In any event, by being flexible and creative, the business owner stands to create an agreeable lease arrangement and, by the same token, the financial stability that this creates will also advance the long-term interests of the landlord. This is especially true in multi-tenant environments where the stability of one business owner contributes to the stability of another and creates a commercially attractive neighborhood.
It is undeniable that the economic downturn has had a considerable effect on tenancy rates in Central New Jersey and elsewhere. If you are a business owner who has managed to survive the recession, and you are looking for leaseable space, you should take advantage of the opportunities available in the current “tenant’s market.” No matter the size of your business, as a tenant today, you don’t necessarily have to accept a lease as proposed by a landlord or sit on an existing lease that is ripe for renegotiation. Similarly, landlords can take affirmative steps to hold onto existing tenants and attract new ones by providing incentives and by being flexible, in the negotiating process.
Whatever your interests or purposes may be, business owners should take their leases seriously, especially now, given the real potential for securing favorable new deals and restructuring existing ones. Business owners who fail to do so or who enter the fray unprepared and without the proper tools risk losing an opportunity and, quite possibly, jeopardizing their business – a lesson that some small businesses, unfortunately, have already learned. Indeed, given the complexities inherent in preparing and negotiating a commercial lease (many of which have not been detailed here), business owners would be well advised to seek legal counsel before entering into any such agreement.