There is a common misconception amongst many lessee’s that the lease is just another cost of doing business and is not an asset but a liability to the overall business operations. This approach generally produces sub-optimal outcomes when it’s time to negotiate a lease renewal/option period.
As a general rule, it is good practice to commence lease negotiations at least 12 months prior to the date of expiry of the existing lease. This timeframe allows the lessee the opportunity to control the process of negotiations and not get caught out by not being prepared when the expiry date or option period has passed.
Further, a fit for purpose lease adds significant value to the operation of the business in the short, medium and long-term business lifecycle. For example, if the business operates in a low growth economic period, a lease which provides a occupancy cost ratio of less than 3% will assist in keep operating costs low and provide the business with the ability to trade from a lower revenue base for a period of time.
When a business decides to sell all or a portion of the operation, having a lease/s which have good tenure and sustainable commercial terms will add significant financial benefit to the final price that can be achieved in a business sale process.
It is critical to forward plan all lease negotiations and set a clear goal for the final commercial outcomes you wish to achieve for each lease deal. Remember the better prepared you are, the more likely you will achieve a superior outcome at the conclusion of the negotiation.
