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LETS GET DOWN TO BUSINESS.

Question :
Hey! I have 2 yoga studios, one we’ve been able to use the night access in emergency’ clause and don’t have to pay rent until we are operational.  However our other locations landlord says all she can offer is 30% rent reduction.  I’d love some advise how best to negotiate.thanks for everything you are doing and offering 

Question submitted 16/04/20 @ 09:41pm
Industry: Services
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  • Great news on the first studio. In terms of the second studio, I would take a step back and think through your options so you have a full picture before you enter into the negotiation.

    What is your cashflow, and what can you afford to pay on this studio’s rent without any revenue from in-studio sessions? I would look at this on a one time basis, but also form a viewpoint on what this looks like if this situation continues for another 1-2 months. Ultimately this should be your guiding light in terms of negotiation.

    There’s a concept in negotiation called (Best Alterntive To Negotiated Agreement) which effectively means understanding your Plan B. You can find more informaiton about that here: https://en.wikipedia.org/wiki/Best_alternative_to_a_negotiated_agreement

    I would recommend trying to determine what kind of rent relief other tenants have been able to negotiate with landlords in the same/similar location to your studio to also help inform you % ask.

    Have you been able to transition your classes to online delivery in order to preserve revenue? That will at least give you the ability to deliver your classes, engage and retain customers, pay and retain your instructors, as well as generate revenue/cashflow.

    I hope this helps~

    Morena there – a bunch of other owners are facing the same challenges as you – see the discussion here -https://www.manaaki.io/forums/topic/we-are-negotiating-with-10-landlords-for-rent-due-on-our-retail-premises-what-deals-are-other-businesses-striking-with-regard-to-a-reduction-in-rent-at-this-time/ As Kirsty says, think hard about your cash flow and what you can afford. It also will start in terms of what your actual lease says – if you hunt around on the Legal Forums page – https://www.manaaki.io/forums/forum/legal/ you will see some great advice from our legal advisors here. Finally, the Government did announce some support for tenants and landlords earlier this week – which are all in summary – https://covid19.govt.nz/latest-updates/government-announces-new-support-for-businesses/ – they basically extend the time before a landlord can cancel the lease. My best advice, read your lease first, then engage with the landlord if you can.

    Is your second yoga studio on the 6th edition ADLS lease with clause 27.5?

    If so, then it is up to you and your landlord to negotiate what is a fair portion of the rent to pay. In my opinion this would be 20-50% of your current rent as your landlord is still providing the premises for you to store your chattels and equipment there.

    I assume your second yoga studio does not have the clause but the landlord has offered a rent reduction. I would review your lease to see what terms there are you can rely on eg force majeure and frustration – also google these – there are various articles and commentary across the web. Also google rent abatement – there are some good articles on how to negotiate a rent reduction.

    In negotiating with your landlord, I would adopt a practical approach – how much can you afford to pay and how much can your landlord afford to reduce the rent to? It is in both your interests for your business to survive, otherwise, the landlord has no income and the building reduces in value because it is empty. The landlord may be able to negotiate a reduction in mortgage payments with his/her bank which would then enable them to reduce the rent to you.

    Be transparent and open with your landlord about your cashflow and ability to pay. Adopt the approach of not wanting to transfer your cashflow problem to the landlord but wanting to agree a mutually acceptable solution. What can you offer the landlord in exchange for a rent reduction – extend your lease, agree a renewal etc?

    Whatever you agree to, you want to be able to commit to, otherwise, it is easy to destroy the relationship by not honouring commitments.

    I trust that helps.

    Cheers

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