Renegotiating your lease
By Tony Ozelis

Part 3 - Researching Fair Market Values (FMV)

Regardless of whether you’ve decided to stay, relocate or are still unsure of your needs, you should take the time to determine what the average rents are that are being paid for similar sites in your area.

We always preach that there’s no status in paying retail and that every buck you save in rent goes right to the bottom line…even if you never see it. So understanding what the fair market value (FMV) is in your area is very important...simply because you should never pay more than you have to.

Spending a few hours getting a basic understanding the site's FMV is a very good thing. It doesn’t have to be an in-depth appraisal, just enough information to satisfy your own curiosity that you’re not paying more for your space than you should be.

Believe it or not, market rents do go down sometimes. That “hot” community shopping center built ten years ago may have gone to seed or have been out-placed by a newer, sexier retail development just up the road. Lots of things can drive the desirability (and asking rents) down.

Try to assemble at least three comparable rents for your area and adjust them accordingly in order to get a better feel for what the rents are in your area. Feel free to download and use our "comp sheet" if you'd like. It's a .pdf file, not overly sophisticated, but it will help keep things organized. {Comp Sheet.pdf}.

Try to identify similar properties with similar features and adjust them (size, demographics and amenities) to better reflect your situation (and don't expect everything to match up perfectly). The best source for a accurate comparable would be the business owner themselves. Pick a convenient time for them, explain your situation and ask. In the end, you should have a better understanding of what others are paying in your area and a better understanding of what you should be paying.


ASKING RENTS are not comparable's…only signed “arms-length” transactions are. If you have a difficult time getting your comps, asking rents are an acceptable, but flawed, alternative. In a pinch, deducting 15 – 20% off an asking price will generally put you in the ballpark.

Being well prepared for the inevitable meeting with the LL is the best position to take. Research what rents are being paid, not only in your immediate area, but in similar markets as well (but stop short of quoting rents being paid in Botswana).

Have a plan “B” just in case things don’t work out so well with Mr. Landlord. 

If rents in your area have risen by 15% can you (and your business) afford it? Face facts, you’ve just spent the last bunch of years building customer awareness and confidence and it’s natural not to be in such a hurry to leave your present location. But you know your business and sales better than anyone. If your occupancy costs* rise by 15%, will your business still thrive?

(* Occupancy Costs, often the second highest cost after payroll, are the totals of rent, CAM charges, utility charges, trash removal, property taxes, etc.)

OK smart guys I still want to stay where I am; now what?

If you decide not to move and you find that the market rents for your area are in line with the new proposed rent from your landlord, shouldn’t you just sign the extension and continue to do business where you are? Well, maybe…


Next: Part 4 - Negotiating with your landlord

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