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Updated about 5 years ago on . Most recent reply

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153
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136
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Juan V Lopez
  • Investor
  • Las Vegas, NV
136
Votes |
153
Posts

In VERY One-Sided Deal With Landlord For My Business Building

Juan V Lopez
  • Investor
  • Las Vegas, NV
Posted

Context: I own a donut shop in a busy area in Denver. I acquired the business in January 2019 and the previous owner had a lease agreement through April 2021. Business is good, but my current lease is terribly one-sided. Monthly rent is $6K/mo and I'm responsible for property taxes ($14K for 2019). Giving away more then $85K in 2019 for the building without earning any equity on it killed me.

The building is old and we are planning to renovate in mid-2020. I'm going to invest into it to improve business. It's in a very good area that is still being developed and has a ton of potential. I have no doubt we'll crush it even more after renovating and catering to our younger market.

The owner has zero interest in selling the building. He's an older gentleman who owns about 70% of the buildings within a few miles radius from us. I hold no contempt toward the owner because I wish I had circumstances like his (owning a building that someone pays you rent AND property taxes on). He's a smart man. But I'm on the bad end of an extremely one-sided deal.

He gives ZERO tenant improvement allowances and his attitude toward someone trying to get a mutually beneficial deal is currently: "If you don't like it, leave. I'll have someone else in there in no time." Our building stands alone on a corner lot with lots of parking – very rare and coveted in our area.

Question: I want to re-negotiate as we head into the end of our current agreement in 2021. How do you create leverage with someone who currently holds all the cards? Any ideas for how to approach this and propose something mutually beneficial? We want to continue doing business here, but the numbers don't lie. Can't keep giving away big chunks of money year after year.

TIA BP community :]

Most Popular Reply

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761
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Tim Delaney
  • Buffalo, NY
501
Votes |
761
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Tim Delaney
  • Buffalo, NY
Replied

I may come across as a bit harsh here, but if you just bought the business didn't you analyze the rent and tax situation and incorporate it into your pro forma? It may not feel great spending money on rent, but if that is the best thing for your business then just suck it up and deal with it. I would be considering renegotiating if I were you into a longer term lease because, as someone mentioned above, it is to the benefit of the tenant (you!) to know your business location is secure. I know people that have had long standing retail and restaurant businesses and had their leases not renewed by landlords which basically put them out of business because relocation was either too expensive or they never made up their revenue in the new location.

Just so you know where I am coming from, I purchased an existing retail wine and liquor store in a rented space about 7 years ago. I paid my rent and even increased it a lot to get a bit more space at one point. I kept on good terms with the elderly landlord and dealt with his lack of improvements for a few years - but asking him every few months if he was ready to sell the plaza. After years of telling me he was going to die with it so he didn't have to pay capital gains he shocked me one day by saying he was ready to sell and wanted to hold a 90% note. My point being, work with him, get to know him, develop a relationship and show him you care about the property - also let him know you want to buy it.

When you do renegotiate, one thing to definitely include in the lease if he is willing is a right of first refusal to purchase the property. Another option is to try to establish a fair value for the building and just present him a written offer for it - a friend of mine did this to a landlord a few years ago after always having back and forth verbal discussions that never really went anywhere. The landlord signed on the spot and both parties were happy. Yet another option would be to try to work out a lease to own option where maybe you can give him some type of larger down payment now and have your "rent" go towards paying off the property over a fixed period of time (obviously lots of legal and logistical issues here).

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