<em>Legally</em> <strong>Speaking</strong>
 
 

 

Negotiating commercial leases while working out of the recession
Jim Juliano - Fall 2009

Teams in a financial slump—or just generally looking to save some money as we work our way out of this tough economy—may find they need look no further than their own leases for some relief. Whether new or existing, commercial leases always present opportunities for negotiation, provided both sides are willing—a fact that's particularly useful to know during a recession and a recovery.

And landlords may be willing. Public entities that own ballparks may have their own recession-related pressures, such as more difficult debt financing or decreased tax revenues. Private sector landlords that hold the keys to your separate administrative offices and team shops may be trying to satisfy lender covenants that require certain occupancy or revenue levels while pools of prospective tenants drop and, possibly, debt service and utility costs increase. As a result, they, too, may be ready to discuss amendments rather than deal with defaults and evictions.

Where can you save money?

As you consider the options below, remember that public perception is important to your team. Your leases should always be fair to both sides, but dealing with a public entity property owner brings with it heightened public awareness. Your goals should include keeping community perception favorable to the team and providing the property owner with sufficient revenue to maintain the ballpark.

In ballpark leases, following are some provisions that may be negotiable:

  • BASE RENT. Most ballpark leases require base rent payments, perhaps with percentage overrides based upon revenues, and perhaps with downward adjustors based upon other factors. The parties may want to take a look at the history and consider amending the base rent to more accurately reflect economic reality.

  • PERCENTAGE OF SALES. You may be able to adjust the percentages of ticket and concession sales that are paid to the landlord to reflect a true picture of the costs and profit margins.

  • COURTESIES. Consider revising the number of free tickets and other courtesies that the team provides to the property owner.

  • ADVERTISING SPACE. You can negotiate with the owner to approve more billboards or video boards, both inside and outside the ballpark, to increase advertising revenue.

For offices and team shops, especially those that may be separate from the ballpark with a different landlord, the following items may be on the table:

  • SQUARE FOOTAGE. Giving up some space may solve the problem for both sides. The team reduces rent and triple net charges—typically a portion of maintenance costs, taxes and insurance that the property owner passes through—while the owner maintains a square footage rate that may be important to its financial statements.

  • OPTION TO EXPAND. The team may start a new lease term with just enough space to handle current needs, but, at the outset, negotiate an option to take additional space in the future. You have the advantage of locking in today's rates, while the owner has the upside of a tenant that may stay in the building longer.

For both ballpark and office leases, consider negotiating the following provisions:

  • TERM. The parties may consider increasing the term of the lease in exchange for a reduction in the rental rate.

  • MAINTENANCE AND REPAIR COSTS. The landlord may be willing to take over some of the costs. Either way, both parties should watch these expenses and should work together to cut them. In the case of triple net leases at offices and team shops, where the owner provides the maintenance service while the tenant pays the cost, you should have audit rights and should take them seriously.

  • IMPROVEMENTS. It may seem counterintuitive during a recession, but enhancing amenities—building a new restaurant and bar, for example—can increase revenues as you work out of the recession. If the team is planning improvements, typically the property owner will contract for and supervise the work and will provide an improvement allowance that the team pays off as an additional monthly charge. The team may negotiate to get the property owner to pay some of the costs of the improvements or to provide a credit against the rent for the amount the team pays. Or you may be able to contract for the construction less expensively than the owner, thus saving money.

Keep these options in mind, and take a look at your leases for other ways to get through the pressures of the recession and to improve your position for the recovery.

 

 

 
 
 
 
 

This website contains general information that should not be considered legal advice or legal opinion concerning individual situations. Legal counsel should be consulted for specific advice.

Copyright 2009 by L. James Juliano Jr.
Legally Speaking® is a registered trademark of the law practice of L. James Juliano Jr.