Many companies believe that either 1) They must live with whatever terms are stated in their existing lease until it expires or, 2) They can go to their landlord, tell them that they can't afford to pay their existing high rental rate, and the landlord will willingly drop their rent to current market rates. Which is correct? Well....generally neither, exactly as described. Here's how to get the most benefits:

First, I need to state that some landlords won't renegotiate any terms - often because they are in financial straits and don't have the latitude to do so. And some landlords, fearsome of losing a key tenant on whom perhaps renewing their financing terms is contingent upon, might just drop the rent in anticipation of future goodwill value. Most landlords, however, do not fit either of these categories.

If a property owner is most interested in long term yield, they are almost always willing to consider any proposal that will provide them with greater long term benefits.   Most pension funds, private equity investors, and many individual landlords fit in this category.  The reduced rent goal of the tenant and long term value goal of the landlord are not mutually exclusive.  They can each achieve their objectives with a formula that we call Blend and Extend.

In the same way that you can take a bank loan and amortize it over a longer period of time to reduce your payments, you can agree to extend your lease at market rates (if below your current scheduled rate) and get the landlord to effectively "tear up the lease" to provide an immediate rent reduction. For increased savings, or if market rates are equal to or above your current rate, you can also give a portion of the space back to the landlord.

For example, if the existing lease is for 10,000 SQFT of office space at $25/SQFT and two years remain, the remaining obligation is $500,000. If the market rate is now $20/SQFT and you only need 6,000 SQFT, restructure the lease by adding three additional years of term (6,000 x $20 x 5 years = $600,000). This provides the landlord with an additional $100,000 of value on the lease. It also drops the tenant's rent by more than half, from $20,833/month to $10,000/month.

Will every landlord bite?  No.  Will most of them?  Yes, so it is worth the effort.  This is just one example, and there are many creative ways to accomplish similar benefits to create a win-win situation for both parties. The key to gaining the landlord's interest is to structure the lease so that the new total obligation exceeds the obligation remaining on the existing lease. Blend and Extend - because Less is More.