The financial landscape has changed drastically over the past couple of decades. Most people are inclined towards making some money, especially businesses, and the rising inflation is making multi-unit franchises seek better ways to maintain their profits.
According to attorney Jason W. Power, some of the factors causing the increase in expenses are payroll, inventory, taxes, and a speedy rise in the rate and application of technology. These days, however, an often-overlooked strategy to rake in more funds and manage the rising costs is by proactively managing your clients’ lease portfolios.
Some Tactics to Help Balance Rent Reduction in the United States
We all know that rents in the United States are increasing every now and then. It is very difficult to manage daily lives on a minimum wage. But here are some of these tactics that can help balance rent reduction:
Letting Landlords Know the Hidden Costs
Negotiating leases amidst high rent prices can be a daunting task, especially because there are several other costs to be considered. In Texas, for example, rent taxes have gone over the roof, with some people paying more than $15 in triple net as taxes are set at $10 per square foot. Undoubtedly, this has a direct impact on the rent to be paid because if the taxes go up, the rent will also go up.
A good rent reduction tactic that can be employed in a situation like this will be to let landlords know about all hidden costs, including the taxes to be paid per square foot. The more transparent you get with landlords, the higher the chance of negotiating better.
Address Renewals and Rising Costs of Rents
Companies with multiple locations need to spread rent and still make a profit. Gelmon, a rent manager at Acuity North America, says a chief reason for the rise in rent costs was that in negotiating leases at first, many tenants agreed to a fixed increase of about three to five percent or the consumer price index (CPI) every year, which would be independent of but added to the landlord’s usual rent increases or triple-net-lease costs.
Base rent increases go up faster than you know it over time simply because of the cumulative characteristic that economics or market conditions cannot predict. For the portfolios that suffer from this, negotiating a change in how rent works before the lease term is over is very important.
After all, many operators simply renew leases by exercising extension options, which means rents will continue to soar without any obstacles. To cap this increase, franchises should create a unique renewal process that begins long before the last day when tenants usually decide to renew. This renewal process could be as long as twelve months.
All the factors that usually affect can then be reviewed based on the prevailing conditions before both parties begin renewal talks. Operators can then enter the negotiations.
Close Underperforming Spaces
If a franchise is consistently losing money from a location, closing it might be the best option if the franchisor approves.
Another major operator says, “Put all your cards on the table with the landlord. Let them see why they need to take back the location.” Withholding rent to terminate leases or reduce rent is sure to draw attention, but it is usually the best way to ensure the landlord listens.
The best way to terminate a lease is by applying between three and six months’ worth of rent as termination fees while adding a month’s rent for each year that remains and the payments in arrears.
Conclusion
In today’s day and age, rent reduction can be a thorn-in-the-rose issue, and many operators usually do not know how to handle it. However, with the tactics listed in this article, you will be able to record profits for every location you have in your portfolio.
