How to Restructure a Commercial Lease

There are many reasons to restructure a commercial lease. The reasons can range from securing more time for a flourishing business to reducing the rent to survive. Knowing when and how to restructure a commercial lease is part of doing business.

There are a number of ways to approach the challenge of restructuring a lease. The key is to understand your needs, develop a plan, and present the landlord a well thought out proposal that addresses the landlord's needs as well as your own.

If you want to learn more about how to restructure a commercial lease consider these techniques.

Learn what the landlord can do - Knowing what your opponent is able to do enables you to target your requests or choose which issues to address.

  • Determine the loan status as part of your effort to restructure a commercial lease. A landlord who has just acquired a property is likely to have a new, large loan and a lender who controls many decisions. A recently refinanced shopping center also likely has more stringent lender controls than a center with an older, seasoned loan. Find out the loan status by asking or simply pulling a recent title report.
  • Find out if co-tenants have gotten help before seeking to restructure a commercial lease. Landlords also hate to set precedents with tenants; especially when the precedent lowers rental rates. Talk to your cotenants to see if any of them have gotten rent relief or other assistance.
  • Discover what the landlord will do if you leave. Consider how your lease compares to deals currently being made. If you are not in a multi-tenant center, gather what other landlords are getting for comparable space. This will indicate what your landlord can expect to do if you leave.

Prepare a plan to restructure your commercial lease to present to the landlord - Don't approach the landlord with your hand out expecting a break. This is business. A professional approach will yield better results.

  • Be prepared to share how you are doing in the business by providing the landlord your sales history and profit/loss history. Before the landlord should be expected to reduce your rent he will need to be convinced that you are truly in need of help to stay in business.

  • The value to the landlord in restructuring a commercial lease is to keep you as a tenant. That is, to keep the lights on in your space. You need to be able to show how rent relief will make your operating numbers viable to allow you time to build sales and regain stability.

Sell why your plan to restructure your commercial lease will benefit the landlord - if you want help you will have to convince the landlord that helping you will in some fashion be of benefit to him. Before he can utter the word 'no' you will want to demonstrate why he should say 'yes'.

Develop a short be meaningful list of the reasons that you would consider your proposal of you were the landlord. These benefits will be best derived from the research you did about comparable rents and vacancy factors in the area. By helping you the landlord might avoid a vacancy, having to re-let the space at a lesser rate while incurring the costs of re-letting, or simply having the space dark and diminishing the appeal of the center to customers and co-tenants.

What do you want from a restructure of your commercial lease - make sure you are asking for what you need. In some cases rent relief will only slow the inevitable.

  • If your losses are such that rent relief won't get you out of trouble or stay the day you have to close, you might be better to seek an early termination of the lease.

  • Maybe your rent is pretty cheap and what you really want is for the landlord to do a better, more aggressive job of marketing the center to bring in more customers. Maybe there is a co-tenancy issue that is suppressing your sales.

  • The point is to identify the reason you are struggling and then address that problem head on rather than simply seeking rent relief as it is the obvious way a landlord can help.

If you don't have the time to restructure a commercial lease yourself consider hiring an advocate to do this for you. There are many different types of professionals who do this time of work including commercial real estate brokers, financial advisors, management consultants and attorneys. They can be hired to advise you on how to approach the landlord or actually do the negotiating on your behalf.