Balance Owner Tenant

One of the key conditions for the success of a business center is to respect the interests of both the tenant and the owner. The relationship between them should be based on the win-win principle. But how can this be achieved? Let's analyze the changes that have taken place over the past few years. I don't think anyone has forgotten that four years ago the market situation allowed owners to dominate the lease terms. The tenant had little choice but to accept or leave. These were the realities of the pre-crisis market.

And what is happening today?

The market is just coming out of a series of economic shifts. In recent years, there has been a serious crisis, in the hottest moments of which the tenant began to "play first" by imposing conditions on the landlord. At the moment, the market has more or less stabilized, and the situation is in a sense rolling back. But it is worth paying attention to the following point: business center owners have gained useful experience, thanks to which they are now building a strategy for dealing with tenants in a more forward-looking manner. Obviously, the success of a business center will be maintained only if a balance is maintained in relations with tenants.

In practice, business center managers do not always demonstrate a willingness to reduce the rental rate or make concessions in other clauses of the agreement. Owners usually set a discount limit of up to 10%. However, it is worth noting that in the pre-crisis period such a discount was considered to be definitely good.

However, such an approach is typical only for owners of properties characterized by good liquidity. Owners of less liquid business centers, on the other hand, demonstrate flexibility in the process of tenant selection. But what is significant is that when it comes to large space, starting from 300-400 m², owners are willing to accept discounts of 20-25% of the rental rate. In addition, owners of such business centers sometimes make additional concessions, for example, agree to complete the premises' decoration, etc. In general, they demonstrate a willingness to compromise with tenants.

What happens when a tenant wants to change the terms of a long-term lease?

Such situations happen quite often. After all, the market is inherently a rather agile mechanism that sometimes demonstrates the ability to make significant adjustments to realities in just six months. And the changes can be so serious that it entitles the tenant to at least raise the issue of a possible revision of certain terms of the agreement.

Usually, the tenant's course of action is as follows. When the end of the contract is approaching, consultants are engaged to find a more profitable alternative, and it is important to understand that more profitable options can always be found from a financial point of view. The tenant company then negotiates with the new prospective landlord, seeking more favorable terms. And after that, having at least a commercial offer in hand, and sometimes an agreed-upon text of the agreement, it starts negotiations with its current landlord. The essence of the negotiations is simple: we have a more favorable offer, so let's talk about the possibility of revising the current terms. This is a soft option. And there is a tougher one.

This is when the tenant puts the landlord in an "either/or" situation. Either you improve our conditions or we vacate the space. And such an offer is made a couple of months before the end of the contract. If the premises in question are large, it is highly likely that the landlord will not be able to find a replacement in an adequate time frame, and will eventually agree to concessions.

Based on the example of 2009, we can say that in at least 9 out of 10 such cases, the tenant won, as he had enough arguments to impose his own terms. Today, we can say that the owner, when it comes to negotiations while the contract is still in force, almost never agrees to concessions.

And the situation changes dramatically if the current agreement has already expired and the discussion of new terms between the landlord and tenant takes place at the time when it is necessary to extend the agreement. В

In such circumstances, about 50% of business center owners are forced to make concessions. The reason for this is primarily the reluctance to spend time and financial resources on finding a new tenant. In addition, any business owner seeks stability. However, it is worth mentioning owners who own a competitive asset and clearly understand the benefits of the asset. Such a landlord is not likely to make any concessions. This is because a liquid property itself is capable of attracting tenants.

How is the rental rate approved?

The basis for negotiations in this context will be the terms and conditions set by the owners of the premises. As a rule, a preliminary understanding of possible conditions is first achieved with the help of consultants. In the case of a consultant's proposal, the final rate is usually not reduced, as it adequately reflects the market situation. If the rate is an initiative of the owner, the consultant, after analyzing the market, recommends reducing it. Most often, business center owners agree in this case. After all, this also reduces the period of positioning the facility on the market as having free space.

Under what conditions will the owner agree to reduce the rate?

In this case, the financial condition of the owner is fundamental. If the financial assets are strong, the owner can afford to wait for a tenant. This is especially true when it comes to a large facility that involves a long-term contract. There are cases when owners of such facilities set a serious bid, waiting for a tenant for about a year. In the end, everything ended up with the signing of a long-term contract at the rate originally set by the owner.

What else can the owner offer besides a favorable rate?

Whatever it is, it is ultimately about saving money for the tenant. Examples include repairs to the premises at the owner's expense, or special conditions regarding rental vacations or deposit requirements. There are many options, and you can even make a rating if you wish. In which the usual preference, namely a reduction in the rental rate, will be in the first place. And then - certain types of construction work at the expense of the owner of the BC, improved conditions on the deposit, etc.

What compromise can be called reasonable

It is obvious that the owner's task is to lease the premises on the most favorable terms from a financial point of view. The tenant's task is the opposite, to find a premise that has the necessary characteristics while achieving the lowest possible rate.

So the "point" at which the parties will eventually shake hands is somewhere in the middle. This is a compromise. This is how the balance of interests is formed. Often, this requires the owner to offer a number of additional bonuses and benefits that are of very specific value to the tenant, so that the tenant will agree to enter into the agreement.