Build a Corona Battle Plan for your business: Landlord negotiations

“Everyone has a plan until they get punched in the mouth” – this was said by Mike Tyson, and he was right. As South African business owners we’ve just been punched — and the playbook has gone out the window.

But we have to get up again and fight. And I’m creating a series of webinars to offer insights, strategies and tactics to help us fight for our businesses to thrive.

In the first webinar I outlined a Corona Battle Plan for businesses, and one of the first and most obvious points was to reduce money flowing out of the business.

Amid the Covid-19 outbreak, how do business owners approach their landlords to negotiate payment breaks?

What’s one of the biggest costs that most businesses bear? Accommodation.

For many SMEs who have been sucker-punched by the impacts of Covid-19 revenue has simply dried up, and there is no cash coming in to cover big overheads. So, how do we approach our landlords, who themselves are facing a crisis, to negotiate payment breaks?

I drafted a letter template to guide business owners on approaches to these discussions. It is general and not specific to any one business owner. It has many elements that you can select from in putting your own letter together.

In blue italics, I have given reasons for each of the underlying paragraphs to guide how you can manage the relationship but also to serve as insight into how landlords think too.

I have gone to pains to demonstrate empathy and understanding from the landlord’s perspective. You’ll have one chance to get this right so be authentic, honest and determined.

Don’t take anything personally and strive until you have a deal that will sustain your business. In this letter, I don’t point to any Act of God clauses. Most rental agreements have such clauses.

The way they are written opens and closes many other doors that you can use to negotiate. It’ll be specific to your rental agreement.

Please feel free to use and circulate this letter to your suppliers and customers should feel it useful.

Your businesses sustainability depends on theirs too. We are all, big and small businesses, in this together.

Take care of yourself, your staff, your business and let’s get to the other side of this alive and ready to grow.

Letter template to send to landlords

 

Dear ………………..

Urgent, pro-active response to the corona economy

I am very concerned about the future viability and sustainability of my business as a result of the economic shock in response to the corona pandemic.

(The following paragraph indicates insight and forethought in terms of your business, the lived reality of the environment we are living in and confirmation that you intend to defend your business through proactive leadership)

Mike Tyson said, “everyone has a plan until you get punched in the face”. I believe winners are the ones that have the fortitude and creativity to get up again and fight to survive and get to the other side of that shock. As a key partner to your sustainability, I urgently want to meet with you and find a sustainable path to get to the other side of this economic shock for us both.

(The following paragraph confirms the reality of the situation and the position of your own business indicating that it’s not personal, it’s not just you, it’s very much a national issue that all business owners face. Specifically, it’s not as a result of your having mismanaged your business and being irresponsible)

The degradation of our economic growth over the last five years combined with the unpredictable but consistent pain that Eskom delivers has left us, like many other established businesses, with thin reserves. The economic shock of Corona could well be the final blow to our business. As a result, I’m left with hard choices to make.

(The following paragraph indicates that you have taken all necessary steps to safeguard your business and that you are not coming to your landlord as the first port of call. In fact, it’s more a last resort than a first option. It also demonstrates your commitment to sustaining your business as well as your thinking and sensibilities around your business and person)

My thinking is as follows:
1. This business is my source of income, meaning and purpose. I need to do whatever it takes to survive and get to the other side of the corona economy.
2. Key to the sustainability of my business are my staff.

a. Without them, being a tightly resourced business, I would be unable to market, sell and service clients and customers – there would be no business to be done. I have explored reduced workdays in non-essential but supporting positions, renegotiated packages where possible and the like.

b. Beyond being unable to deliver service, drastic retrenchment of my staff would be the final cash blow since I cant afford it plus, once we are on the other side of the corona economy, I won’t have capacity to kick start the engine of my business again.

3. I have revisited many of my suppliers. Because of our long relationships and history and because all are playing the long game of getting to the other side of the corona economy, I have managed to ease some of the cash flow risks that threaten the sustainability of my business.

4. I have planned to switch off all sources of power and water to prevent bleeding costs through electrical trickles and water leaks that would otherwise occur demonstrating my mindfulness and care of your accommodation

5. My rental payments are up to date and I have consistently paid rent and operating costs on time
demonstrating my bona fides

The following paragraph indicates that you’ve clearly thought through some options suited to your business. It also demonstrates an empathy for your landlord and that you are cognisant of your agreement with the landlord. Finally, it sets some expectations regarding the economic impact and recovery period. It’s important that you negotiate a sustainable arrangement rather than one that requires you to come back for further reprieve. Be conservative in your estimations and requests and select one or two of the most appropriate options suited to your business and landlord relationship.

All indications are that we have a six-month period of economic crisis that we must get through. Given that I pay my monthly in advance, the trading month of March has allowed me to secure my April rent.

The corona shutdown will impact my April revenues definitively and depending on what happens post April, possibly longer too. In light of this and given the nature of my business, I’d like to propose …..…. options:

Option 1 for low risk businesses: a reduction in rent:

• Rental discounts of 45% then 30% then 15% spread over the next three months, one month apart,
  effective from 1 April.
• I will pay my full operating costs over this period
• This would immediately fall away should the social distancing and isolation restrictions on
  movement and social engagement be lifted.
• I will extend my lease with you for six months in order for you to make up your losses since you
  are enabling same for me during this period. It’s imperative we both win.

Option 2 for medium risk businesses: variablise my rent:

• Reducing my rent by ….% and adding …% of my monthly turnover as an additional rental charge
  from 1 April.
• We retain this model until the economy recovers sufficiently for my turnover to get back to the
  average monthly value of my previous financial year.
• I will extend my lease with you for six months in order for you to make up your losses since you
  are enabling same for me during this period. It’s imperative we both win.

Option 3 for high risk businesses: a rental holiday:

• A reduction in rent of 95% for three months with an option to extend for a further 3 months
  depending on the state of the economy effective 1 April.
• I will continue to pay my operating costs during this period
• I will extend my lease with you for six months in order for you to make up your losses since you
  are enabling same for me during this period. It’s imperative we both win.

Option 4 for all businesses: usage of my rental deposit:

• Please draw my rental deposit to cover the month of April in lieu of April rent.
• In addition, I’d grant you the use of accumulated interest from that rental deposit to claw back the rental deposit in part, the balance of which I’d agree to settle over 6 months from 1 May 2020.

(The following paragraph indicates that you understand and appreciate that your landlord also has operating costs that need to be sustained. It’s called empathy and that you understand business)

Should you require letters from me in order to support your bond and payment obligations to your funding institution, I’d be glad to provide as such. In addition, should you require letters from to support your negotiations with the local council regarding a reprieve on your rates and taxes, I’d be glad to provide as such.

(The following paragraph indicates that you are open to their ideas too. I have no doubt that most landlords are equally worried about their properties and specifically, very concerned about losing tenants. It’s not an uncommon
understanding in amongst landlords that a good tenant lost, takes upwards of three years to replace. It also indicates that you are determined to meet and get a deal done to ensure your survival)

I would like an urgent meeting with you to discuss my reasoning further given the nature of my business and demonstrate how this would increases the sustainability of my business during this unprecedented economic shock.

I will be in contact to find time today to meet and discuss further and look forward to a positive discussion as well as your thoughts, guidance and suggestions. Should you not be able to meet in person, I am able to have a Zoom or Skype call with you anytime up and until 9pm this evening.

Yours sincerely

………………..

This article is a summarised version of the first of a regular Aurik webinar series Pavlo Phitidis’s presented on 24 March. See the recorded version in the video above or here. See the webinar’s YouTube channel for more videos in this series.

*Pavlo Phitidis is the CEO of Aurik Investment Holdings, which invests in and assists growing small businesses.

Featured image: andibreit via Pixabay