Lease Said, Soonest Mended
Last week, on a trip to Athens, I drove through Kifissia, an affluent neighborhood of upmarket houses and shops, to get to my hotel. As we drove my Greek colleague pointed out one of the bigger stores on a shopping mall. It was rented until recently to an international fashion chain at a monthly rent of €90,000.
When Greece went into economic turmoil the tenant wrote to the landlord to advise that, at the current level of rent, the store was unprofitable and that they were intending to close down at the next lease break point, which was upcoming.
The landlord, sensing that there might be an increasing number of empty shops, contacted the store group and unilaterally offered to reduce the rent to €40,000 per month. The store group counter offered €20,000. The landlord, offended with the offer, and sure his property was worth more, refused.
The fashion chain pulled out, and the premises lay empty for 12 months. They were finally rented to another fashion house – at a rent of only €12,000 per month.
It is very easy to be wise after the event. For the landlord, the €20,000 rent offered by his first tenant would have been a good result compared with the €12,000 he ended up with from his second tenant.
But a better negotiating solution might have been a linkage between store revenue and rent. If sales from the store fall because of lower business activity, rent could fall in line. Similarly, when times get better, the rents can increase to reflect this.
Revolutionary idea? – of course not. But most leases don’t allow for this flexibility because they are drawn up by uncreative lawyers acting for uncreative landlords. That’s because as negotiators they haven’t realized how many variables can be brought to bear. Time is always a variable that can be used. A month is a month in most rental agreements, but I recently was told of a lease for a shop which allowed for a