Negotiating with Commercial Landlords

Oct 5, 2020

One of the largest ongoing expenses for many companies is the commercial lease, whether this be of office premises, warehousing or retail units.  

A high cost item is correspondingly a potential high-savings item.  

Landlords have never been more open to negotiation than they are today following the pandemic and the economic downturn.  

PRISM Supply Solutions recommends that commercial leases are re-examined by every business to look for possible cost-savings – even where the rent is currently affordable.  

PRISM has enabled clients to benefit from all of the following solutions, some more obvious, others which could be labelled “out of the box”.  Contact us for our consultancy rates.    

1. Rent

As well as an outright reduction in the rent amount, you can speak to your Landlord about other ways of managing payments e.g. by taking a rent break or a rent deferment (a current break off set against future payments at the end of the term).  

Many commercial tenants are paying a “turnover” or “performance” rent premium.  Be sure to consider this in your proposals.  If you are not already paying a turnover premium then discuss varying your lease to include this, again this can be on a current basis or a deferred basis – allowing both parties to benefit further down the line.  

2. Rent Substitutes

Many commercial landlords in the UAE are operating across multiple sectors.  Is it possible for your business to service certain needs of the landlord in exchange for a temporary rent break or reduction?  

Some businesses for which this might be an option are legal services, visa and recruitment services, real estate brokerage, financial services, construction and hospitality services.

 3. Profit Share

Instead of paying a performance premium on top of the basic rent, your landlord may consider a profit-share period or lease.  Most landlords will prefer a fixed rent amount though this kind of arrangement can work where the tenant has previously had a strong performing business and is likely to have to leave the premises without a compromise.  

4. Increase the Term

If your landlord is not immediately amenable to a temporary or permanent rent reduction, they may be more open to increasing the term (meaning the length) of the lease and rebalancing the rent over the new period.  

A longer lease term benefits the landlord at a time of lowered income projections and precarious occupation rates.  Consider if a longer term, e.g. 5 years instead of 2 years, locking in rent for a longer period will encourage the landlord to reduce the rent for guaranteed occupation and will ease any cashflow issues you may expect due to lower economic activity.    

5. Other Payments

Look at other costs relating to your premises beyond rent.  Your business may be paying substantial service charges and utility charges – these can also be negotiated to be paid outright by the landlord or shared.  

6. Sharing

If your business needs have diminished because of your workforce being enabled to work remotely or reduced demand due to the slow-down then premises sharing may be the ideal solution.  PRISM recommends that you first do your research and find a possible partner before approaching your landlord with your proposal.