Notebook: Champion Salt Sells Assets
Whether it’s equipment, other business assets, or even the property housing the snow removal or ice management operation, lease and lease payments are often one of the most recurring expenses. important to a business. While nothing can be done about the impending need to report leases in the operating financial statements, unlike many other fixed costs, commercial leases are often negotiable.
Equipment owners and lessors know that a reliable tenant or lessee who pays regularly on time is in the best position to renegotiate leases and rental contracts.
Obviously, no lender, lessor or landlord will agree to reduce the rent payments of a tenant or financially sound tenant unless, of course, the restructured arrangement creates an economic advantage for the landlord or the lessor.
NEGOTIATION OF AGREEMENTS
There are three situations in which it may make sense to contact owners and / or lessors:
- The snow-clearing operation is floundering,
- The local economy is suffering from a slowdown and
- The operating lease expires in a year or two.
- The rented equipment is on the verge of obsolescence.
Specialized equipment leases and leased assets located in an area with high vacancy rates provide excellent opportunities to renegotiate and reduce payments.
Since every owner and lessor is fully aware that it takes time for a business to move to a new space or acquire new equipment, selecting a replacement should be the first step in renegotiation. Taking the time to research before approaching the current owner or lessor can save money in the long run.
BEFORE THE RENEGOTIATION
Before any renegotiation, it is essential to find at least three viable substitutes. Request simultaneous proposals from the current owner / lessor and at least three others who would be suitable. It goes without saying that all requests for proposals should be taken seriously. Even when they’re perfectly happy with the business premises, equipment, or other business assets currently leased, these alternatives can become important if renegotiations get ugly.
Here are a number of factors to consider before renegotiating:
Are there rental options? If so, how long is the lease or rental contract option and does it meet your requirements? Lease options are generally for the benefit of the tenant or lessee, so exercising an option instead of renegotiating a new lease or rental agreement might be more beneficial.
Is the current rent or lease amount fair? The search for payments for similar goods or equipment as well as the consideration of incentives offered to others should be systematically undertaken. Competitive rates, conditions and incentives offered as alternatives play a crucial role in any renegotiation.
Are the current needs of the snow and ice control company the same as when the lease or rental agreement was entered into? Moving to a smaller space, a more convenient location, or upgrading essential equipment are all options to consider.
Where possible, renewal negotiations should begin as soon as possible and consideration should be given to what will happen if these negotiations fail. Is there a backup plan if things don’t work out? Prolonged renegotiations, the expiration of existing leases or leases make it necessary to start renegotiations early.
The inability to develop alternatives is one of the most overlooked negotiating tactics. Once a landlord believes a current tenant is considering renewing, that tenant immediately loses bargaining power, leaving the landlord or lessor in control. Every entrepreneur or business owner should develop a plan “B”, “C”, etc. in case he chooses not to accept what the current owner or lessor is offering. This will allow entry into the renewal negotiation from a position of strength.
Research and multiple alternatives obviously play an important role both in the negotiation and in the renegotiation process. So, too, use tactics such as the following:
Create competition. Even if a snow removal business owner or manager doesn’t want to move or change leased equipment, it pays to shop around and collect legitimate competitive offers that can be used as leverage in the renegotiation process.
Ask the lessor or owner to make the first offer. Whether it’s a first lease or a renewal, always resist the first offer.
Always ask for more than necessary:. Whether it’s negotiating or renegotiating free rent, tenant allowances, or other terms, always ask for more than what is actually needed. If three months of free rent are needed, ask for five. If two spare parts are needed for the backup, request four. By asking for more than what you really need, you have positioned yourself to give and receive strategically based on the importance of certain items to you.
Remember to negotiate non-rent or non-lease issues. For tenants, this includes parking, signage, carpet, painting and the deposit or personal guarantees that may have been agreed in advance. For equipment rental, are on-site repairs or maintenance required, are repairs or repair replacements included? As a current tenant or landlord, many of these issues will cost the landlord / landlord less than finding a new tenant or tenant.
SMALLER EQUAL PAYMENTS EXTENSIONS
If a business is financially sound, it would be unrealistic for an owner / lessor to reduce the terms of the contract simply because market conditions, in general, have deteriorated. There is, however, the so-called “exchange dollar exception” where the owner / lessor – with the permission of his lenders – accepts a reduction in payment. This allows a creditworthy tenant or tenant to save on their payment obligation during the term of the current lease by reducing the amount of space rented or simply reducing the amount of payment.
These agreements typically require a tenant / lessor to agree to extend the lease or rental agreement for a period of five to 10 years at a rate equal to the expected market rate that almost everyone expects. be higher in the future. Obviously, this practice will only result in short-term savings while requiring greater expenditure in the long term.
RENEGOTIATIONS OF BUSINESS PREMISES
Among the factors that should be taken into consideration when renegotiating rental contracts for the workshop, warehouse or other commercial property of the snow or ice control operation, there are issues such as:
What is the vacancy rate in the neighborhood? Before renegotiating, details may be needed. A walk around the ares will reveal the number of vacant spaces and notes must be taken of their addresses and how long they have been vacant.
How are the rents in the neighborhood? If they are on the rise, it may be necessary to rethink the approach to the snow removal operation during renegotiations. If rents go down, of course, that’s good leverage.
How is the traffic in the area? A traffic dependent business doesn’t have to count it itself. Many local professional associations count pedestrian and automobile traffic to measure the vitality of different neighborhoods.
How is business going? While not many business owners like to discuss their own sales in detail, if sales or revenue is down, being open could facilitate renegotiations and encourage owners, lessors, or even lenders to work with the transaction. .
In today’s economy, no lender, owner, or lessor will willingly agree to reduce the rent or lease payments of a financially strong business unless, of course, the restructured arrangement provides the the other part an economic advantage. Fortunately, there are situations where such economic benefits are possible, which can be a win-win for all parties involved.
RENEGOTIATION OF NEGOTIATIONS
Present a renegotiation position based on facts, such as a negative local economy, lower sales of the snow removal operation, etc. while looking for ways to increase the size of the pie – what the business can offer the owner or lessor in return, such as longer, better or more rewarding terms, can ensure success. And remember, it often takes three “no” answers before most renegotiations stop. A no can mean that too much has been asked for an answer or a counter-offer.
A commercial lease consultant can ensure that the owner or lessor is aware of the options available to the business without creating a conflicting relationship. They will ensure knowledge of deadlines and provide the necessary negotiating leverage to obtain the best and most economical conditions. Remember that tenants and landlords don’t get what they deserve; they get what they bargain for.
Market conditions can change quickly and a knowledgeable snow and ice management business owner or manager should continually strive to ensure that they get the best deals possible. Obviously, you should not try to renegotiate without a clear reason to do so or while already having favorable conditions. In other words, don’t play with a good thing just for fun.
Additionally, keep in mind that the new accounting rules that will become a reality for publicly traded companies next year and others in 2020 will require that all leases be included in the financial statements of a transaction. snow removal – as a liability.
Finally, do not warp when renegotiating. Know your backup plans and the state of your business. If the business is going to fail, moving to a new location or not getting a better rental deal won’t have much of an impact but provides another point of negotiation.
Mark Battersby is the financial and accounting writer for Snow Magazine. He resides in Ardmore, Pennsylvania.